LIBRARY 

OF    THE 

UNIVERSITY  OF  CALIFORNIA. 

Class 


PRINCIPLES 


OF 


INSURANCE  LEGISLATION 


BY 

MILES   MENANDER  DAWSON 


NEW  YORK 

THE  HUMBOLDT  LIBRARY 
64  FIFTH  AVENUE 


COPYRIGHTED,  1895 

BY 
MILES  MENANDER  DAWSON. 


CONTENTS. 


PAGE 

The  Nature  and  Scope  of  Insurance 3. 

General  Enabling  Statutes 9 

Restrictive  Statutes 17- 

Restrictive  Statutes- 
Life  Insurance. ...     .   21 

Other  Personal  Insurance 27 

Liability  Insurance 31 

Fire  and  other  Property  Insurance 37 

Credit,   Surety,    Burglary,  Title   and  Mortgage 

Insurances 43 

Regulations 49 

Regulation  Statutes — 

Life  Insurance.        1 55 

II..... 61 

in ;.  67 

IV 7I 

V 77 

VI 81 

VII 85 

VIII 89 

IX 93 

Other  Personal  Insurance 99 

Fire  Insurance    I , 103 

II 109 

III ' 113 

IV.. II9 

Liability  Insurance ; 123 

State  Supervision I2g 

State  Insurance. , , , , ,,,,,., , 135 


11382 


THE  NATURE  AND  SCOPE  OF  INSURANCE. 


(  Insurance  is  the  equalization  of  fortune.  The  defini- 
tion may  sound  like  a  mere  commonplace ;  but  it  is  no 
such  thing)  The  line  of  demarcation  is  just  there,  (insur- 
ance prevents  those  inequalities,  which  are  induced  by 
misfortunes  to  individuals,  by  spreading  the  loss  over  u 
larger  surface,  by  dividing  it  among  a  larger  number  ; 
by  this  very  means  also,  the  inequalities,  caused  by  the 
good  fortune  of  individuals,  are  sensibly  reduced  by  their 
contributions  to  cover  the  common  loss,  by  their  premium 
payments.  The  kinship  between  insurance  and  gam- 
bling is  close  ;  they  both  deal  with  the  science  of  average, 
applied  to  chance.  And  so  far  as  that  science  is  con- 
cerned, aside  from  the  hazard  arising  from  men's  con- 
scious efforts  to  gain  which  is  known  as  the  moral  hazard, 
there  is  no  distinction  whether  a  company  bets  you  that 
your  house  will  not  burn  or  that  your  neighbor's  house 
will  hot  burn. 

But  there  is  a  difference,  nevertheless,  between  those 
two  transactions.  The  difference  is  that  in  the  former 
case  you  have  nothing  to  gain  ;  you  are  merely  striving 
to  avoid  loss  or,  more  accurately,  to  share  the  risk  of  loss, 
common  to  such  property.  In  the  latter  case,  on  the 
contrary,  you  will  not  only  lose  if  the  house  of  your 
neighbor  does  not  burn,  but  you  will  also  gain  if  his 


4  THE  NATURE  AND  SCOPE  OF  INSURANCE. 

house  does  burn.  The  latter  transaction  is,  therefore, 
pure  gambling,  undertaken  only  for  purposes  of  gain 
without  giving  an  equivalent ;  its  tendency  would  be  to 
increase  the  inequalities  of  men's  conditions,  to  magnify 
instead  of  modify  the  inequalities  imposed  by  the  chances 
of  nature  and  society.  The  former  transaction  is,  instead, 
pure  insurance,  undertaken  only  for  the  purpose  of  escap- 
ing instead  of  incurring  a  hazard ;  its  tendency  is  to 
minimize  the  invidious  inequalities  which  mere  chance 
and  not  desert  occasions.  And  beneath  all  this,  at  the 
very  bottom  of  economics  and  sociology,  lies  the  distinc- 
tion of  public  policy,  the  distinction  between  that  which 
makes  men  foes  preying  upon  one  another  and  that 
which  makes  them  allies,  co-operating  with  each  other, 
between  competitive  isolation  and  solidarity.) 
(The  very  first  office  of  insurance  legislation,  then, 
should  be  to  make  this  distinction  clearly.  The  basis 
upon  which  the  distinction  must  be  predicated,  is  that  of 
insurable  interest,  of  indemnity.)  It  is  the  business  of  the 
State  to  permit  and  to  encourage  the  co-operation  of  its 
citizens  in  applying  the  laws  of  average  to  those  chances 
which  they  are  by  exigencies  already  existing  and  beyond 
their  control  compelled  to  take,  for  the  purpose  of  dis- 
tributing the  loss.  It  is  the  business  of  the  State  to  dis- 
courage and  prohibit  all  enterprises  which  apply  the  laws 
of  average  to  create  chances  and  by  hopes  of  great  gains 
tempt  inconsiderate  persons  to  increase  the  necessary 
hazards  of  life.  Broadly  and  generally  speaking,  all 
honestly  managed  institutions  of  the  former  sort  should 
be  fostered  by  legislation  ;  and,  without  exception,  every 
concern  of  the  latter  stripe  should  be  put  down. 

We  are  yet  in  the  infancy  of  insurance  which  is,  more 
than  all  other  modern  inventions,  the  child  of  our  modern 
civilization.  Its  development  is  both  toward  more  perfect 
form  in  fields  already  occupied  and  toward  increased 


THE  NATURE  AND  SCOPE  OF  INSURANCE.  5 

comprehensiveness,  covering  ever  fresh  fields.  It  is, 
itself,  a  practical  outgrowth  of  a  doctrine  which  was  for 
a  long  time  relegated  to  sentimental  moralizing  and 
deemed  utterly  impracticable.  That  doctrine  took  its 
most  simple  and  perfect  form  in  the  command  :  "  Bear 
ye  one  another's  burdens."  For  centuries,  this  was  inter- 
preted by  persons  to  mean  :  "  Bear  ye  others'  burdens," 
and  did  not  convey  to  the  mind  the  idea  of  a  lighter  but, 
instead,  the  idea  of  a  heavier  burden.  It  remained  for 
our  hard-headed  age  to  evolve  from  the  true  meaning  of 
the  command  a  system  which  knits  men  together  for 
purposes  of  mutual  burden-bearing  to  a  degree  which  was 
absolutely  unknown  in  the  days  of  mere  sentimentalizing 
about  brotherhood.  At  the  same  time  the  autonomy  of 
the  individual  is  preserved  and,  indeed,  protected ;  the 
sense  of  security  makes  him  more  a  man  and  more  capable 
of  independent  labor.  The  scope  of  bearing  others'  burdens 
instead  of  sharing  all  burdens,  is  sensibly  lessened  and 
almost  the  complete  abolition  of  the  humiliation  of 
charity  may  one  day  be  expected  from  the  extension  of 
the  principles  of  insurance  into  practice  in  all  fields  where 
there  is  loss  and  the  risk  of  loss  which  overwhelms  the 
individual. 

The  fields  already  occupied  or  being  occupied  fall  natu- 
rally and  easily  into  general  classes  or  divisions.  First, 
among  these,  is  insurance  against  those  misfortunes 
which  directly  touch  the  person  in  his  own  body  or  occa- 
sion loss  to  another  person  because  of  his  death.  In  this 
group  would  be  included  all  forms  of  personal  accident, 
health,  old  age  and  other  permanent  disability  and  life 
insurance.  For  convenience's  sake  and  because  it  accur- 
ately designates  the  class,  let  this  group  be  known  as 
Personal  Insurance. 

Next  in  order  of  nearness  to  the  individual  is  insurance 
against  loss  of  property  possessed  by  him,  through  mis- 


6  THE  NATURE  AND  SCOPE  OF  INSURANCE. 

fortunes  which  destroy  it  or  impair  its  value.  This  would 
include  fire,  lightning,  windstorm,  hail,  marine,  plate- 
glass,  and  other  like  forms  of  insurance.  This  may  be 
named,  with  less  .distinguishing  accuracy,  however, 
Property  Insurance. 

Another  sort  of  hazards  now  covered  by  insurance  con- 
sist in  liabilities  for  injuries  occasioned  others  by  the 
negligence,  tort  or  even  crime  of  the  insured.  All  forms 
of  employers'  liability,  public  liability,  elevator  and 
steam  boiler  insurance  so  far  as  they  cover  injuries  to 
persons,  and  the  like,  come  in  this  category.  It  may  be 
appropriately  named  Liability  Insurance. 

Insurance  of  property-owners  against  losses  or  injuries 
because  of  the  negligence,  insolvency  or  even  crime  of 
others  forms  yet  another  division.  Included  in  it  are 
surety,  credit,  burglary  and  other  similar  forms  of  insur- 
ance. The  selection  of  a  name  for  this  group  is  most 
difficult,  as  it  is  well  toward  the  border  of  insurance 
development.  Perhaps,  the  English  legal  term  "Tort," 
which  means  a  wrong,  might  be  applied  to  it. 

Beyond  this  class  and  yet  later  in  development  are 
several  divisions,  as  yet  in  a  merely  formative  state  and 
not  clearly  recognized  in  all  cases  to  be  of  the  nature  of 
insurance.  Among  these  are  title  insurance  and  the 
peculiar  application  of  the  rules  of  average  in  debenture 
companies  and  building  and  loan  associations,  the  kin- 
ship of  which  to  insurance  has  not  been  clearly  recognized 
and  set  forth. 

In  a  code  of  insurance  laws,  each  of  these  classes  and 
in  fact  each  branch  of  insurance  in  each  class  should  be 
provided  with  ample  provisions  for  its  proper  growth  and 
development  into  the  most  serviceable  instrument  possi- 
ble. First  in  the  order  of  necessity  is  permissive  or 
enabling  legislation  which  makes  possible,  or  at  least 
lawful,  the  organization  of  companies  or  societies  to  carry 


THE  NATURE  AND  SCOPE  OF  INSURANCE.  7 

on  the  business  of  insurance.  The  absence  of  such  legisla- 
tion, and  yet  more  often  the  presence  of  prohibitive  legis- 
lation, have  been  effectual  preventions  of  advance  in 
many  directions  where  advance  was  called  for.  Legisla- 
tion of  this  nature  should  be  carefully  planned  with  a 
view  to  the  possible  requirements  of  the  future.  It  is  the 
foundation  upon -which  the  house  is  to  be  built  and  it 
should  be  solid  and  true  to  correct  principles.  Unless  it 
is  broadly  conceived  and  intendecj.  for  the  public  good,  it 
is  likely  to  be  a  curse  instead  of  a  blessing.  Rarely  has 
such  legislation  been  dictated  by  existing  institutions  in 
their  special  interest  that  it  has  not  proved  an  injury  to 
the  public,  who  were  not  so  well  served,  because  of  laws 
supposed  to  be  for  their  benefit. 

The  public  have  usually  retaliated,  as  is  but  natural, 
by  restrictive  legislation.  They  recognize  the  predatory 
instincts  of  existing  and  often  autocratic  companies  and 
they  seek  to  hold  them  within  proper  bounds.  No  field 
of  legislation  is  so  tempting  to  the  new  lawmaker  as  that 
of  restriction  ;  the  "thou  shalt  not"  is  the  novice's  con- 
ception of  law.  Consequently  all  insurance  companies 
and  societies  in  this  country  groan  under  a  grievous 
burden  of  restrictions,  never  the  same  in  any  two  States. 
The  fact  that  companies  protest  warmly  against  these 
restrictions  is  commonly  considered  excellent  proof  that 
the  restrictions  are  just  what  they  ought  to  be,  so  unfavor- 
able an  opinion  have  the  people  of  the  public  spirit  of 
insurance  managers.  Notwithstanding  the  popularity  of 
this  view,  it  is  true  that  in  no  branch  of  legislation  would 
it  be  wiser  to  stay  the  hand  than  in  restrictions  upon 
insurance  companies.  There  are  but  two  things  which 
justify  interference  with  the  right  of  free  contract  in 
insurance  matters.  These  are,  first,  to  make  sure  that1 
the  element  of  indemnity  is  never  lost  sight  of  and  that 
gambling  is  not  part  of  the  transaction,  and,  second,  that 


8  THE  NATURE  AND  SCOPE  OP  INSURANCE. 

nothing  in  the  conduct  of  the  business  is  against  public 
policy.  It  is  also  proper  for  the  State  to  require  that  all 
contracts  of  insurance  follow  a  certain  order  in  their  pro- 
visions and  stipulate  all  conditions  in  clear  type  in  their 
natural  sequence.  When  this  is  done  and  proper  restric- 
tions are  observed,  there  is  no  excuse  for  further  inter- 
ference. 

Regulative  legislation,  though  closely  akin  to  restrictive, 
is  different  in  the  important  particular  that  its  provisions 
are  guiding  rather  than  restraining.  Included  in  this 
very  important  class  of  laws  are  statutes  covering  the 
government  of  companies  by  the  persons  interested,  the 
manner  in  which  funds  may  be  invested  and  the  purposes 
for  which  they  may  be  disbursed,  the  means  of  testing 
solvency,  the  subject  of  public  reports  and  various  similar 
subjects.  The  things  to  be  desired  in  this  sort  of  legisla- 
tion are  that  it  should  devise  means  by  which  the  views 
of  the  majority  of  the  persons  interested  should  be  effective 
in  the  actual  management,  that  it  should  grant  the 
utmost  opportunity  for  choice  in  the  matter  of  invest- 
ments compatible  with  safety,  that  the  standards  of 
solvency  should  be  such  that  no  really  solvent  institution 
would  be  adjudged  impaired  and  that  the  fullest  publicity 
be  given  to  all  the  affairs  of  the  institutions,  holding  back 
nothing  which  the  public  has  a  right  or  a  reason  to 
know. 

It  will  be  observed  that  the  field  of  insurance  legislation 
is  a  very  broad  one.  It  would  require  a  good  volume 
to  cover  the  subject  of  legislation  for  one  sort  of  insur- 
ance in  a  thorough  and  exhaustive  manner.  No  such  a 
task  will  be  undertaken  here.  All  that  can  be  hoped  for 
in  a  work  of  this  character  is  a  plain  and  concise  indica- 
tion of  the  fundamental  principles  from  which  all  legisla- 
tion should  proceed. 


GENERAL  ENABLING  STATUTES. 


Without  the  enactment  of  any  laws,  whatever,  the 
right  of  making  insurances,  in  the  absence  of  prohibitive 
statutes,  belongs  to  individuals  or  partnerships,  just  as 
does  the  right  to  conduct  any  other  business  which  is  not 
in  conflict  with  public  policy  or  in  controversion  of  law. 
It  is  a  fact,  well  known  to  all  students  of  the  history  of 
insurance,  that,  in  the  beginning,  all  insurances  were 
undertaken— underwritten,  the  old  expression  was — by 
individuals.  These  individuals  must  have  been  of  a  very 
enterprising,  speculative,  daring  character,  much  disposed 
to  take  chances ;  for,  without  anything  like  reliable 
information  as  to  the  nature  and  proportions  of  the 
hazard  they  were  encountering,  they  bet  freely  large 
sums  against  very  small  ones,  their  only  advantage  being 
tbat  they  were  also  stakeholders.  The  fact  that  men 
could  be  found  with  so  adventurous  temperaments,  may 
seem  to  us  significant ;  insurance  had  its  origin  in  the 
gambling  instinct,  for  these  men  acted  through  pure  love 
of  hazard  and  without  insuring  enough  persons  to  make 
anything  like  an  average.  In  fact,  so  hazy  were  their 
ideas  of  the  real  nature  of  what  they  were  doing,  that  to 
assume  more  insurances  was  thought  to  be  increasing  the 
risk  instead  of  diminishing  it  by  enhancing  the  proba- 
bility of  securing  an  average.  It  is,  therefore,  true  that 

9 


to  GENERAL  ENABLING  STATUTES. 

the  business  of  insurance  was  originally  undertaken  on 
the  part  of  the  insurers  through  a  mere  love  of  risky 
adventures.  So  far  as  they  were  concerned,  it  was  as 
purely  gambling  as  was  any  other  game  of  chance  ;  and 
as  it  was  then  carried  on,  its  legality  and  propriety  from 
the  standpoint  of  the  insurer  were  just  as  questionable  as 
were  the  legality  and  propriety  of  roulette. 

But  consideration  of  the  side  of  the  insured  puts  an 
entirely  different  face  upon  the  transaction.  When 
persons  gamble  with  dice,  for  instance,  what  one  wins, 
another  losses  ;  each  would  lose  nothing  and  each  would 
win  nothing  if  they  did  not  play.  On  the  contrary,  when 
one  man  insures  another  against  the  loss  of  property,  it 
does  not  follow  that  what  one  loses  the  other  gains  ;  the 
gain  by  the  insured  could  in  any  case  be  but  relative — 
that  is,  relative  to  the  greater  loss  he  would  have  suffered, 
had  he  been  without  insurance.  Had  there  been  no 
insurance,  he  would  still  have  been  compelled  to  run  that 
risk  ;  what  he  has  done  by  insuring,  is  not  to  create  a 
chance  for  gain,  but  avoid  a  chance  of  loss.  In  other 
words,  he  has  made  use  of  betting,  to  "hedge,"  as  our 
friends  of  the  green  cloth  would  call  it.  Since  the  wheat 
market  has  become  the  plaything  of  speculators,  honest 
dealers  in  breadstuff's,  such  as  millers,  are  compelled  to 
make  use  of  the  privilege  of  "  selling  short "  to  avoid  a  fall 
in  the  market  before  the  goods  which  they  buy  can  be 
prepared  for  the  market ;  this  not  for  the  purpose  of 
speculating,  but  for  the  purpose  of  preventing  their  pur- 
chase being  a  speculation  and  their  legitimate  profits 
being  swept  out  by  a  mere  turn  of  the  market.  They 
insure  their  purchases  by  selling  short  an  equal  amount. 
This  is  also  of  the  nature  of  a  "hedge;"  the  only  real 
objection  to  it  on  corn  exchanges  and  in  insurance  as 
well,  is  that,  so  far  as  the  other  party  to  the  contract  is 
concerned,  it  is  gambling  pure  and  simple. 


GENERAL  ENABLING  STATUTES.  11 

To  explain  how  it  might  be  rescued  from  that  difficulty 
in  the  matter  of  grain  deals  is  not  the  purpose  of  this 
paper  ;  so  far  as  insurance  is  concerned,  there  is  but  one 
way  to  relieve  the  transaction  of  this  gambling  character. 
That  is,  to  change  hazard  into  approximate  certainty  by 
so  increasing  the  number  of  risks  as  to  make  the  losses 
form  an  average  upon  the  regularity  of  which  it  is  possi- 
ble to  rely.  Whatever  may  have  been  the  propriety  of 
questioning  the  right  and  wrong  of  individual  insurances 
in  the  days  when  men  assumed  but  few  such  risks,  there 
is  no  occasion  for  questioning  the  unmixed  benefit  which 
flows  from  insurance  given  by  firms  or  companies  which 
have  so  extended  their  business  that  it  is  no  longer  a 
matter  of  risk  at  all. 

Insurance  needed  just  that  growth  and  development  to 
make  it  thoroughly  practical.  And  it  was  this  necessity 
for  a  large  number  of  risks  as  well  as  for  permanency  on 
the  part  of  the  insurer,  which  made  it  advisable  to  trans- 
fer the  business  of  insurance  from  individuals  to  compa- 
nies. This  came  about  gradually ;  in  fact,  the  limited- 
liability  stock  company  system  did  not  really  flourish  in 
any  line  of  business  until  within  the  present  century. 
Even  now  in  most  nations,  the  power  to  act  as  a  body 
corporate  is  not  given  except  by  special  act  of  the  sover- 
eign power.  This  was  true,  also,  in  this  country  until 
we  found  that  any  charter  could  be  bought ;  and  so 
helped  to  clear  our  legislative  halls  from  corruption  by 
removing  the  temptation  through  the  enactment  of 
general  corporation  laws.  But  it  was  a  long  time  before 
insurance  developed  to  the  point  where  the  absence  of 
such  laws  was  an  obstacle.  When  it  passed  beyond  the 
stage  of  mere  occasional  betting  between  individuals  and 
became  a  transaction  which  every  prudent  man  thought 
wise,  it  was  still  relegated  to  individuals  who  drew 
together — in  London,  about  Lloyds  coffee  house — and 


la  GENERAL  ENABLING  STATUTES. 

underwrote,  each  as  much  of  the  risk  as  he  saw  fit. 
Neither  of  these,  however,  became  surety  for  the  others  ; 
each  was  responsible  for  his  own  engagement  and  no 
more. 

It  was  inevitable  that  such  a  system  should  give  way 
to  partnership  and  stock-companies.  Indeed,  the  organi- 
zation into  companies  to  carry  on  the  business  of  insur- 
ance antedated  the  general  formation  of  limited-liability 
companies.  The  earlier  insurance  corporations  were,  in 
effect,  partnerships  and  with  unlimited  liability.  One  of 
the  oldest  London  companies,  the  Sun  Fire  Office,  kept 
that  form  until  within  this  decade,  refusing  to  make  its 
affairs  public  and  in  every  way  conducting  itself  as  a 
mere  association.  But  the  need  for  large  capital,  the 
desirability  of  publicly  attesting  their  strength  and  solv- 
ency and  the  consideration  that  an  insurance  company 
should  not  pass  out  of  existence  like  an  individual,  all 
conspired  to  make  the  organization  of  companies  the 
natural  thing  to  do.  The  undertaking  of  the  insurance 
of  lives  and  annuities  made  this  more  requisite  ;  for  it 
was  ridiculous  to  make  an  insurance  of  lives  depend 
upon  a  life  which  might  be  less  secure  than  any  of  them. 
And,  though  the  insurance  might  be  a  charge  against 
the  insurer's  estate,  it  would  keep  the  affairs  of  such 
estates  in  a  frightfulty  mixed  state.  The  process  of  pro- 
bate has  ever  been  slow  enough  and  complicated  enough 
without  that. 

s  Two  forms  of  companies  can  be  used  for  the  purpose  of 
effecting  insurances.  The  first  and  simplest  to  consider 
is  that  of  a  company  for  private  profit,  composed  of  per- 
sons who  engage  in  the  insurance  business  as  did  indi- 
vidual insurers  aforetime,  except  that  they  seek  to  avoid 
the  hazard  and  uncertainty  of  individual  underwriting 
by  covering  a  much  larger  number  of  risks.  This  is  the 
common  form  of  stock  company  with  which  we  are 


GENERAL  ENABLING  STATUTES.  13 

acquainted.  The  other  form  is  that  of  a  mutual  associa- 
tion in  which  the  insurers  are  also  the  insured.  It  will 
be  observed  that  the  safety  of  the  transaction  of  insur- 
ance depends  upon  the  sufficiency  of  the  premium 
charged  and  the  ability  to  obtain  and  retain  risks  enough 
to  preserve  an  average.  When  these  things  are  accom- 
plished, the  presence  of  capital  adds  but  little  to  the 
safety  ;  indeed,  it  is  principally  valuable  as  an  earnest 
that  there  will  be  good  and  safe  management,  because 
the  managers  have  much  at  stake.  The  number  of  risks, 
sufficient  to  secure  an  average,  is  supplied  by  the  insured; 
it  follows  that  if  a  sufficient  number  of  these  will  co- 
operate, pay  adequate  premiums  and  secure  for  them- 
selves economical  and  efficient  management,  they  can 
perform  the  function  of  insurance  as  safely  as  can  a  stock 
company  and  save  at  least  the  profits  which  the  stock- 
capital  would  absorb.  These  mutual  associations  may  be 
without  limit  of  liability,  but  the  usual  practice  is  to 
limit  the  liability  of  the  members  to  the  premiums  paid 
or  to  an  additional  sum,  specifically  contracted  for. 

It  is  the  office  of  enabling  statutes  to  grant  the  power 
to  organize  such  companies,  both  stock  and  mutual. 
While  the  right  to  carry  on  the  business  as  an  individual, 
a  firm  or  a  syndicate,  is,  in  the  absence  of  prohibitive 
statutes,  granted  to  every  person,  it  requires  special  legis- 
lation to  give  to  the  same  individuals  corporate  powers 
to  carry  on  the  business  as  a  company.  The  usual  course 
of  the  legislatures  has  been  to  enact  such  laws,  just  as 
occasion  called  them  forth.  Thus  a  law  permitting  the 
organization  of  fire  insurance  companies  would  be 
enacted  when  there  was  a  demand  for  such  legislation  of 
which  the  legislature  was  bound  to  take  notice.  Gener- 
ally, such  laws  have  been  granted  grudgingly  or  accord- 
ing to  the  dictation  of  persons  who  were  interested  in 
their  passage.  The  consequence  is  that  every  new  devel- 


14  GENERAL  ENABLING  STATUTES. 

opment  of  the  principle  of  insurance,  of  the  application 
of  the  laws  of  average  to  the  reduction  of  hazard  to  the 
individual,  has  had  to  fight  its  way  without  warrant  of 
law  until  big  enough  and  popular  enough  to  secure  the 
enactment  of.  laws  which  permit  it  to  serve  the  public. 
This  is  the  history  of  all  such  movements. 

All  of  which  suggests  that  enabling  statutes  are  imper- 
atively demanded  which  will  place  the  whole  business 
upon  a  broader  foundation  and  will  give  free  play  to  the 
inventive  geniuses  of  insurance  to  devise  and  put  into 
operation  new  schemes  for  the  protection  of  individuals 
from  hazards  which  they  are,  by  the  nature  of  things 
and  the  constitution  of  modern  society,  compelled  to 
take.  These  statutes  should  authorize  the  organization 
of  companies  and  associations  for  the  purpose  of  insuring 
against  any  injury  or  loss,  so  long  as  not  against  public 
policy.  There  is  no  occasion  for  special  enabling  statutes 
for  each  branch  of  insurance  ;  indeed,  the  special  statutes 
by  their  exclusive  character  often  effectually  prevent  the 
development  of  insurance  in  directions  which  it  would 
otherwise  take.  In  instance,  observe  the  recent  legisla- 
tion in  many  States,  denying  to  fraternal  life  insurance 
societies  the  right  to  carry  on  a  sick  benefit  business 
other  than  in  local  lodges.  Perhaps,  no  branch  of  the 
work  of  these  organizations  promised  to  confer  so  great  a 
benefit  upon  the  people  as  the  very  thing  which  was  thus 
cut  off  through  the  influence  of  certain  of  the  older  socie- 
ties which  had  no  such  plan.  Such  might,  with  greater 
accuracy,  be  called  disabling  legislation. 

One  objection  to  the  plan  of  having  one  general  ena- 
bling statute  to  cover  the  whole  field  of  insurance  enter- 
prises, is  that  the  result  would  be  that  one  company 
would  endeavor  to  cover  too  large  a  field.  In  the  minds 
of  many  persons,  there  is  a  grave  doubt  of  the  wisdom 
of  undertaking  more  than  one  form  of  insurance  in  one 


GENERAL  ENABLING  STATUTES.  15 

company.  There  is  some  reason  for  this  opinion,  no 
question  ;  though  among  the  most  successful  and  reliable 
insurance  companies  in  the  world  are  those  which  cover 
branches  of  insurance  so  widely  divergent  in  character 
as  life  and  annuity  on  one  hand  and  fire  and  marine  on 
the  other.  The  fact  is,  however,  that  dangers  of  compa- 
nies undertaking  too  many  lines  of  insurance  belong 
principally  to  the  formative  stages  of  the  business.  The 
evils  are  also  not  of  a  very  formidable  sort  and  consist 
for  the  most  part  in  inefficiency  of  management  and 
want  of  enterprise,  arising  from  the  divided  attention. 
But  the  evils  of  refusing  to  companies  the  privilege  of 
making  those  combinations  which  wisdom  approves,  are 
much  more  serious.  The  wonderful  development  of 
several  entirely  new  branches  of  insurance  by  the  Fidel- 
ity &  Casualty  Co.,  of  New  York,  is  an  evidence  of  the 
gains  to  be  realized  by  permitting  a  wise  freedom  in  this 
regard  ;  and  it  is  not  to  the  credit  of  our  solons  that  this 
company  had  to  fight  every  inch  of  the  way  against 
adverse  laws  and  even  now  cannot  exercise  all  its  powers 
in  every  State.  The  only  thing  that  saved  it  anyhow, 
was  the  fortunate  word  "Casualty,"  which  really 
includes  everything  that  could  be  insured  against  and 
has  been  construed  to  cover  practically  all  forms  of  insur- 
ance not  already  accurately  named.  The  benefits  to  be 
derived  from  the  free  combination  of  all  forms  of  per- 
sonal insurance,  such  as  life,  loss  of  member,  temporary 
disability,  permanent  disability  and  old  age,  can  hardly 
be  over-estimated.  Yet  it  is  doubtful  whether  a  charter 
could  be  to-day  procured  for  a  company  to  deal  in  this 
combination  ;  and  it  is  sure  that  any  such  company 
could  not  obtain  admission  into  a  half-dozen  States.  The 
law,  in  this  and  all  other  respects,  should  permit  what- 
ever is  not  clearly  against  the  interests  of  society,  against 
public  policy.  The  permission  should  not  be  grudging 


16  GENERAL  ENABLING  STATUTES. 

and  limited,  but  free  and  encouraging ;  because  the 
whole  institution  of  insurance  is  in  the  widest  sense 
beneficial.  A  general  statute  is  needed  permitting  the 
organization  of  both  joint -stock  and  limited-liability 
mutual  companies,  for  the  transaction  of  any  insurance 
against  loss  through  the  application  of  the  principles  of 
average  ;  the  only  restriction  which  public  policy  sug- 
gests, is  that  of  insurable  interest,  forbidding  the  promis- 
ing to  pay  any  sum  to  any  person  upon  an  event  which 
does  not  occasion  him  a  loss  at  least  equal  to  the  sum 
paid.  Such  a  provision  will  make  it  certain  that  the 
contract  is  never  one  to  increase  hazards,  but  always  one 
to  diminish  and  modify  them  which  insures  that  the 
transactions  will  be  beneficial  and  not  deleterious  to 
society. 


RESTRICTIVE  STATUTES. 


The  novice's  conception  of  law  is  expressed  in  the 
command:  "Thou  shalt  not !"  It  reminds  one  of  the 
doctrine  of  original  sin  and  the  Calvinistic  theology, 
which  bristles  with  prohibitions.  According  to  that  con- 
ception, all  things  are  evil  and  need  to  be  jealously 
restrained  lest  they  run  wild  with  mischief.  It  is  the 
natural  creed  of  the  simple,  the  untutored,  the  timorous. 
Almost  all  the  bills  which  inexperienced  legislators  intro- 
duce or  advocate  are  of  this  sort. 

Enabling  statutes  should  discount  the  necessity  of 
much  of  such  legislation  by  broadly,  but  accurately, 
designating  the  beneficial  objects  to  be  attained  and 
granting  just  the  powers  required  to  be  attained  and 
no  more.  Such  legislation,  when  intelligently  drawn, 
should  so  clearly  indicate  the  whole  course  of  action  to 
be  pursued,  so  firmly  define  the  principles  on  which  the 
work  must  proceed,  that  misconception,  and  consequent 
abuse  of  powers,  would  be  nearly  if  not  quite  impossible. 
Equally  impossible  would  it  then  be  for  frauds  to  con- 
ceal themselves  beneath  the  more  or  less  ambiguous 
terms  of  the  law.  To  this  end,  the  distinction  made 
should  be  vital  and  fundamental,  winnowing  the  chaff 
from  thevwheat.  It  is  not  necessary  that  the  distinctions 
go  too  much  into  detail ;  details  confiuse  and  often  defeat 

17 


18  RESTRICTIVE  STATUTES. 

the  purposes  of  enabling  Acts.  If  such  laws  are  clear, 
definite  and  comprehensive,  restraining  statutes  will  be 
found  to  be  of  minor  importance. 

The  principal  office,  then,  of  restrictive  legislation  is  to 
supply,  by  patching,  the  deficiencies  of  enabling  laws. 
It  will  be  found  that  where  laws  of  the  latter  sort  are 
involved,  ambiguous  and  uncertain  in  their  provisions, 
there  has  been  a  great  popular  demand  for  restraining 
measures  to  prevent  a  wanton  misuse  of  powers.  Thus 
by  accretion  from  new  bills,  amendments  and  court  deci- 
sions the  mass  becomes  greater  and  greater,  and,  com- 
monly, confusion  is  the  more  confounded.  The  more  or 
less  inharmonious  and  conflicting  provisions  act  as  so 
many  traps  for  the  unwary  and  loop-holes  for  the  design- 
ing. The  multiplicity  of  demands  is  also  only  suited 
to  present  conditions  and  forms  of  business,  and  every 
new  and  valuable  invention  has  to  work  its  way  through 
a  very  maze  of  difficulties.  The  imposition  of  restrictive 
additions  to  faulty  legislation  is  like  poulticing  a  blood 
disorder ;  what  is  needed  is  a  radical  cure. 

Yet,  when  the  best  possible,  in  the  way  of  broad  enab- 
ling laws,  has  been  accomplished,  there  is  still  room  for 
many  restraining  statutes.  Each  form  of  application  of 
the  fundamental  laws  brings  with  it  a  train  of  incidental 
possibilities  of  evil,  which  cannot  and  should  not  be  pro- 
vided against  in  the  fundamental  laws  themselves.  It  is 
a  general  principle  of  law,  that  a  corporation  has  all  the 
powers  definitely  granted  to  it,  and  also  all  powers  neces- 
sary for  the  accomplishment  of  the  object  for  which  it 
was  incorporated.  In  such  matters  there  is  evidently 
reason  for  great  latitude,  which  however,  may  be  abused. 
It  is  to  provide  against  such  abuse  that  restrictive  laws 
are  mainly  desirable.  For  instance,  if  there  were  a  gen- 
eral enabling  statute  for  the  organization  of  insurance 
corporations  of  all  sorts,  the  law  merely  specifying  the 


RESTRICTIVE  STATUTES. 


uature  of  insurance,  the  application  of  this  law  to 
mutual  companies,  to  personal,  property  and  other  forms 
of  insurance  would  call  for  carefully  considered  restrain- 
ing statutes,  fitted  to  the  peculiar  character  of  each 


>  In  the  matter  of  general  restrictions,  applicable  to  all 
forms  of  insurance,  certain  broad  provisions  are  indi- 
cated. The  nature  of  insurance  makes  its  transactions 
peculiarly  subject  to  the  danger  of  crossing  the  line 
into  the  realm  of  mere  gambling.  It  is  but  a  step 
from  "betting  to  hedge"  to  "betting  to  win;"  and  the 
step  may  be  very  easily  and  even  unconsciously  taken. 
A  familiar  mode  of  converting  an  insurance  into  a 
gambling  transaction  is  by  making  the  same  in  favor 
of  a  person  who  is  not  financially  interested  to  the 
extent  of  losing  upon  the  occurrence  of  the  event 
insured  against  an  amount  at  least  equal  to  the  sum 
insured.  This  is  want  of  insurable  interest  or  at  least 
of  sufficient  insurable  interest,  and  is  a  danger  common 
though  in  varying  degree,  to  all  insurances.  It  may 
well  be  provided  against  by  a  general  restraining 
statute  which  may  in  turn  be  modified  or  defined 
when  necessary  by  special  statutes  covering  special 
forms  of  insurance. 

Another  general  restriction  which  might  be  desirable 
is  a  prohibition  against  engaging  in  business  other 
than  insurance  or  in  forms  of  insurance  which  are 
conflicting  in  nature  or,  possibly,  in  forms  of  insurance 
which  have  no  necessary  relation  to  each  other.  The 
wisdom  of  the  last  inhibition  is  indicated  by  the  fact 
that  the  management  of  a  corporation  should  be 
homogeneous  and  united,  which  can  scarcely  be  the 
case  when  businesses  which  are  widely  diverse  in 
nature  are  undertaken.  Moreover,  the  objection  of  too 
great  concentration  lies ;  though  care  should  be  taken 


So  RESTRICTIVE  STATUTES. 

in  this  connection  not  to  embarrass  combinations  which 
might  be  of  the  greatest  utility  to  the  public. 

Another  general  restriction  should  be  that,  with  cer- 
tain exceptions,  which  may  be  taken  up  in  detail 
hereafter,  no  person  should  be  insured  against  injuries 
which  are  self-inflicted  or  against  pains  and  penalties 
for  crimes  imposed  by  the  sovereign  power.  Whether, 
pains  and  penalties  for  torts  which  are  private  wrongs 
almost  amounting  to  crimes,  ought  to  be  covered  by 
insurance  remains  also  to  be  considered  ;  but  the  ques- 
tion will  come  up  in  a  more  concrete  form  hereafter  in 
this  series. 

Possibly  another  prohibition  should  lie  against  volun- 
tary payment  or  compromise  of  fraudulent  claims  on 
the  ground  that  to  encourage  such  frauds  in  a  matter 
relating  to  the  destruction  of  property  or  lives  is 
especially  dangerous  to  the  well-being  of  the  State. 
Witness,  for  instance,  the  tremendously  increased  fire 
waste  in  this  country  because,  not  of  careless  adjust- 
ments, but  of  inadequate  inquiry  into  the  cause  of  fires 
and  the  disposition  to  compromise  rather  than  fight. 
Witness,  also,  the  epidemic  of  child-murder  in  the 
crowded  tenement  districts  of  England,  caused  by  the 
bait  of  industrial  insurance  as  there  conducted.  But 
with  the  exceptions  of  these  general  provisions,  restric- 
tive laws  relative  to  insurance  must  needs  be  partial  in 
their  application,  and  even  the  more  general  prohibi- 
tions require  much  modification  to  suit  some  cases. 


RESTRICTIVE  STATUTES-LIFE  INSURANCE. 


The  laws  governing  a  life  insurance  company  should 
be  such  as  would  enable  it  to  do  everything  proper  to 
its  office  in  society,  and  to  restrict  it  from  doing  any- 
thing which  would  interfere  with  the  performance 
of  its  proper  function.  That  office  or  function  is  to 
cover  from  loss  because,  of  contingencies  pertaining 
to  living  or  dying.  These  contingencies  ^are  of  just 
two  sorts.  There  is  the  hazard  of  dying  during  the  pro- 
ductive years  of  life,  and  the  hazard  of  living  beyond  the 
productive  years  of  life.  This  may  seem  like  assuming 
that  to  live  beyond  the  age  when  productive  labor  is 
possible  is  of  itself  a  misfortune,  to  speak  of  that  as  a 
hazard  to  be  insured  against ;  and,  indeed,  there  may  be 
much  reason  to  assume  this,  even  when  old  age  is  unac- 
companied by  poverty.  But  the  only  view  of  hazard  on 
insurance  is  the  financial,  and  what  is  meant  by  a 
hazard  is  always  the  possibility  of  financial  loss  when 
the  word  is  used  in  this  connection.  Death  is  not  a  con- 
tingency, strictly  speaking,  but  a  certainty ;  old  age  is 
also  a  certainty  subject  to  the  one  risk  that  death  may 
earlier  intervene.  The  only  uncertainty  about  either  one 
of  these  things  is  the  time  of  its  occurrence  and  it  is  that 
uncertainty  with  which  Kfe  insurance  has  to  deal. 

The  laws,  then,  should  first  of  all  enable  a  company  to 


22  RESTRICTIVE  STATUTES.— LIFE  INSURANCE. 

insure  against  both  of  these  hazards  as  completely  as 
possible.  It  should  then  restrict  it  from  operations  of 
any  nature  whatsoever  which  might  interfere  with  the 
complete  success  of  the  insurance.  On  the  general  prin- 
ciple that  any  class  of  operations  which  did  not  con- 
tribute to  the  success  of  the  insurance,  stands  in  the  way 
of  that  success  by  deflecting  the  energies  of  the  manage- 
ment into  another  channel,  it  would  be  proper  to  restrict 
the  operations  merely  to  these  departments  of  insurance. 
But  such  a  course  is  not  necessarily  indicated  and  might 
be  inadvisable.  An  example,  however,  of  the  need  of 
just  such  restriction  may  be  seen  in  the  circumstance 
that  several  of  our  life  insurance  companies  are  becoming 
mere  investment  companies  of  a  rather  doubtful  charac- 
ter, that  some  of  the  companies  have  never  played  the 
part  of  life  insurance  companies  at  all  in  consequence, 
and  that  as  a  class  all  the  companies  were  so  misled  by 
the  craze  for  investment  that  their  failure  to  supply 
insurance  occasioned  the  formation  of  a  number  of  crude 
makeshift  societies,  to  perform  the  function  which  the 
regular  companies  failed  to  perform. 

It  is  clear,  upon  reflection,  first  that  from  a  purely 
financial  standpoint,  the  only  contingency  about  death  is 
that  it  may  take  place  during  the  years  when  a  mail  may 
reasonably  expect  to  be  productive.  Death,  taking  place 
after  the  expiration  of  that  period,  is  not  a  financial  loss 
and  is,  therefore,  only  in  a  very  limited  way  a  subject  for 
insurance.  For  the  purposes  of  insurance  against  death 
during  the  productive  period,  there  is  no  absolute  neces- 
sity for  any  investment  as  it  could  be  furnished  on  a 
yearly  renewable  plan  ;  but  there  is  also  no  reason  why 
investment  of  funds  should  not  be  employed  to  furnish 
the  convenience  of  level-premium  or  limited-premium 
insurance.  There  are  two  contingencies  relative  to  the 
disabilities  of  old  age,  one  of  which  is  the  possibility  of 


RESTRICTIVE  STATUTES.-LIFE  INSURANCE.  23 

prior  death,  and  the  other  the  time  when  one  actually 
becomes  permanently  disabled.  If  there  were  no  contin- 
gencies, there  could  be  no  insurance  and  provision  for  old 
age  would  be  a  matter  of  mere  saving  and  investment. 
As  it  is,  insurance  against  old  age  remains  principally  a 
matter  of  investment,  modified  by  the  two  contingencies. 
It  is  at  present  the  custom  of  all  the  regular  companies 
to  consider  only  the  contingency  of  prior  death  in  deal- 
ing with  old  age  insurance  which  is  offered  in  the  form 
of  endowments  or  fixed  annuities  only.  The  co-opera- 
tive societies  are,  in  this  matter  also,  in  advance,  several 
of  them  having  already  incorporated  into  their  contracts 
provisions  for  total  disability  insurance  although  with 
their  usual  rashness  they  have  omitted  taking  the  new 
element  into  account  in  making  their  rates.  There  is 
another  office  now  performed  by  the  life  insurance  com- 
panies which,  while  its  character  as  an  insurance  trans- 
action is  doubtful,  is,  perhaps,  not  inappropriate ;  it  is 
the  accumulation  and  equalization  of  estates  for  men 
who  have  passed  the  productive  period.  All  paid-up 
insurance  partakes  of  this  character  when  the  insured 
passes  the  productive  period  of  life  and  all  premium- 
paying  insurance  also  partakes  largely  of  this  character 
at  the  same  age  of  the  insured,  owing  to  the  heavy 
reserves.  The  propriety  as  well  as  the  wisdom  of  issuing 
any  sort  of  life  insurance  policies  with  payments  extend- 
ing beyond  this  period  is  exceedingly  questionable  ;  but 
the  mere  leaving  of  an  estate  to  be  accumulated  and 
equalized  according  to  the  average  future  lifetime  of 
men,  now  at  the  assured's  age,  does  not  seem  objection- 
able. 

^The  acceptance  of  funds  for  investment  for  other  pur- 
poses than  the  foregoing  seems  clearly  improper  and 
certainly  exceeds  the  proper  office  of  a  life  insurance 
company.  It  really  does  not  n/-Ster  at  all  that  the 


24  RESTRICTIVE  STATUTES.— LIFE  INSURANCE. 

chances  of  living  or  dying  are  mingled  in  the  calcula- 
tions and  the  transaction.  The  issuance  of  a  pure  ton- 
tine or  pure  endowment  policy,  which  is  a  promise  to  pay 
money  only  in  the  event  of  survival,  is  not  an  insurance 
contract  unless  there  are  special  circumstances  which 
render  the  insured  subject  to  a  financial  loss  if  he  thus 
survives.  Even  then  unless  the  term  were  a  very  long 
one,  pure  investment  without  modification  by  the  risk  of 
survival  would  answer  nearly  as  well.  The  combination 
of  this  pure  endowment  policy  with  term  insurance,  so 
that  the  principal  sum  is  payable  at  death  or  upon  sur- 
vival, alters  the  nature  of  the  contract  so  that  it  is  not 
utterly  immoral ;  but  the  immense  augmentation  of  the 
investment  element  is  of  itself  an  unmixed  evil.  Espe- 
cially is  this  the  case  when,  as  has  been  the  fact  for  many 
years  past,  the  stress  of  life  insurance  field-work  is  placed 
upon  the  investment  element  as  if  an  endowment  or  ton- 
tine policy  were  to  be  desired  for  investment  purposes 
only.  The  diversion  in  this  direction  has  also  resulted  iu 
great  increase  of  expenditure  and  in  greater  cost  and 
difficulty  in  procuring  insurances  while  the  same  have 
proven  of  very  short  duration  when  once  procured.  If 
there  were  no  other  reason  for  abandoning  this  course, 
the  fact  that  such  investments  are  tremendously  handi- 
capped should  be  sufficient.  But  there  are  other  reasons 
not  only  why  companies  should  voluntarily  retire  from  a 
field  of  operations,  so  foreign  to  their  proper  functions 
and  for  which  they  are  so  poorly  suited,  but  also  why  in 
the  interests  of  the  public  they  should  be  estopped  from 
continuing  in  this  course.  The  most  potent  reason  for 
restraining  them  is  that,  so  far  from  there  being  any  real 
development  of  the  functions  of  life  insurance  among 
regular  companies  during  the  prevalence  of  this  craze, 
there  has  been  a  retrogression  accompanied  by  unex- 
ampled extravagance,  both  of  which  were  rendered 


RESTRICTIVE  STATUTES.-LIFE  INSURANCE.  25 

possible  and  even  necessary  by  the  departure  from  fur- 
nishing   insurance   suited  to    the  requirements  of   the 
people.    The  first  and  most  important  restraining  statute/^  « 
in  life  insurance,  then,  is  a  law  prohibiting  the  promisJ      U 
ing  of  any  payment  of  money  except  upon  the  event  of 
the  death  or  disability  of  the  insured.      Of  course  this 
should  not  apply  to  the  return  of  over-payments  as  divi- 
dends.    This  might  compel  the  revision  of  the  present 
deferred  annuity  plans  but  that  would  not  be  an  evil  in 
any  sense. 

Perhaps  to  a  less  degree  than  in  any  other  form  of 
insurance  is  there  necessity  for  laws  restraining  the 
issuance  of  policies  in  favor  of  persons  who  have  no 
interest  of  a  financial  character  in  the  thing  or  person 
insured.  Especially  is  this  true  of  insurance  on  adults 
who  pay  premiums  themselves  and  carry  the  insurance 
for  the  protection  of  persons  whom  they  wish  to  protect. 
It  is  plain  that  in  the  most  of  such  cases,  the  policy  holder 
is  a  better  judge  of  his  own  obligations  and  responsibilities 
than  anybody  else  can  possibly  be.  In  this  country,  we 
have  many  very  foolish  and  very  conflicting  laws  on  this 
subject  and  much  litigation  and  even  double  payments 
of  the  sum  insured  have  been  the  result.  In  some  States, 
a  different  rule  prevails  to-day  for  the  policies  of  regular 
companies  and  those  of  fraternal  societies.  Other 
countries  have  tried  the  experiment  of  leaving  the  matter 
of  insurable  interest  open  and  up  to  this  time  there  have 
been  no  evil  results,  one  of  the  companies  of  such  a 
country  showing  the  lowest  mortality  experience  yet 
recorded.  At  the  same  time,  it  seems  proper  to  restrict 
insurance  by  one  person  on  the  life  of  another,  the  bene- 
ficiary paying  the  premiums,  to  issue  only  to  those  who 
have  a  clear  interest  in  the  insured  life  ;  and  as  it  is 
difficult  to  make  sure  that  the  beneficiary  does  not  pay 
the  premiums  in  any  given  transaction,  it  is,  perhaps, 


26  RESTRICTIVE  STATUTES.— LIFE  INSURANCE. 

better  to  enact  a  liberal  law  regarding  insurable  interest 
which  will  work  no  injustice  in  either  case. 

There  is  also  less  reason  to  prohibit  insurance  against 
loss  because  of  self-imposed  injuries  than  in  other  forms 
of  insurance,  excepting  where  such  injuries  produce 
disability  and  are  thus  for  the  advantage  and  profit  of 
the  insured.  The  fact  that  the  benefit  of  a  life  insurance 
inures  to  a  third  person  alters  the  nature  of  the  transac- 
tion and  it  is  the  act  of  the  beneficiary  which  should  be 
held  to  vitiate  the  insurance.  The  proper  attitude  of  the 
State  toward  the  question  of  the  validity  of  life  insurance 
when  the  insured  is  executed  for  crime,  is  a  matter  for 
careful  consideration.  The  present  practice  of  the  courts 
is  to  hold  that  such  claims  cannot  be  valid  ;  but  the 
companies  have  pretty  generally  held  otherwise  by 
making  their  policies  incontestable.  Just  what  sort  of 
justice  it  may  be  considered  for  a  State  to  deprive  a  family 
of  their  support  and  then  deny  them  the  protection 
against  that  very  deprivation  which  they  or  he  had  paid 
for,  all  as  a  measure  of  punishment  for  him  and  of  pro- 
tection to  society,  it  is  difficult  to  say.  That  such  a 
position  should  be  taken,  shows  how  monstrously  unjust 
and  barbarous  our  penal  system  is  which  makes  innocent 
women  and  babes  suffer  the  most  severely  for  the  crimes 
in  which  they  have  no  part.  There  would  be  good  reason 
for  legislation  prohibiting  the  issuance  of  policies,  cover- 
ing only  the  risk  of  death  by  self-inflicted  injuries  or  by 
execution ;  there  is  no  occasion  for  refusing  to  permit 
general  life  insurance  policies  to  cover  both  of  them. 
Indeed,  in  the  matter  of  executions,  the  State  would  play 
a  more  honorable  part  if  it  would  itself  compensate  the 
dependent  family  of  an  executed  criminal 


RESTRICTIVE  STATUTES. 

OTHER  PERSONAL  INSURANCE. 


Personal  insurance,  other  than  life,  has  for  the  most 
part  appeared  in  the  forms  of  accident  and  illness  insur- 
ance. These  two  are  closely  allied,  the  latter,  indeed, 
practically  including  the  former.  The  idea  is  to  provide 
indemnification  for  the  loss  of  time,  loss  of  efficiency 
and  the  immediate  expense,  occasioned  by  either  accident 
or  disease  in  the  latter  case  and  only  external  accident  in 
the  former  case.  The  indemnification  also  comes  in  at 
least  two  forms,  suited  partially  to  the  character  of  the 
injury  sustained  ;  the  loss  of  time  is  indemnified  by  a 
weekly  stipend,  not  usually  paid  weekly,  however,  but 
in  one  sum  at  the  close  of  the  disability ;  the  loss 
of  efficiency  when  insured  against  at  all,  is  commonly 
indemnified  by  the  payment  of  a  specified  lump  sum,  as 
at  the  loss  of  eyes  or  limbs.  Permanent  disability  is 
rarely  if  ever  insured  against  by  the  same  organizations 
and  in  the  same  policy  as  temporary  disability.  Insur- 
ance against  permanent  disability  is  at  present  principally 
supplied  by  assessment  life  insurance  societies.  Indem- 
nification against  the  extraordinary  expenses  attached  to 
treatment  for  illnesses  or  injuries  is  usually  included  in 
the  weekly  payment  and  not  considered  separately. 
There  are  however  hospital  companies  and  associations 

27 


28  RESTRICTIVE  STATUTES. 

which  cover  this  by  au  agreement  to  supply  hospital 
treatment  free  or  in  lieu  of  that  to  pay  for  home  treatment 
and  nursing. 

The  only  other  form  which  personal  insurance  has 
taken  was  the  insurance  against  loss  of  situation,  a 
scheme  evolved  by  one  of  the  most  ingenious  casualty 
insurance  men  but  which  was  withdrawn  after  a  very 
short  trial.  The  desirability  of  such  insurance  is  manifest 
but  its  practicability,  except  possibly  through  the  agency 
of  gigantic  labor  organizations,  is  exceedingly  dubious. 

Perfect  protection  of  the  individual  would  call  for  an 
insurance,  indemnifying  by  a  weekly  or  other  periodical 
payment  against  complete  or  partial  disability,  whether 
temporary  or  permanent,  the  payment  to  continue  so 
long  as  the  disability  continues.  The  payment  should  be 
larger  during  any  period  when  medical  attention,  nurse 
or  hospital  treatment  is  requisite,  that  being  one  of  the 
contingencies  to  be  insured  against.  The  payment  of  a 
lump  sum  because  of  the  supervention  of  permanent, 
partial  or  complete  disability  is  a  crude  form  of  indemni- 
fication, adopted  because  the  companies  wished  to 
terminate  their  liability  and  besides  had  not  the  statis- 
tics at  hand  to  calculate  accurately  the  reserve  necessary 
to  sustain  periodical  payments. 

The  laws  should  foster  the  development  of  personal  in- 
surance along  these  lines,  so  far  as  possible.  The  close  con- 
nection between  all  of  them  and  life  insurance  and  espe- 
cially the  close  connection  with  old  age  total  disability 
insurance,  mentioned  in  the  last  paper,  is  at  once  patent 
and  suggests  that  the  two  classes  of  insurance  conld  be 
supplied  by  one  institution  and,  possibly,  in  one  policy 
better  and  more  economically  than  by  two  or  more  institu- 
tions and  in  two  or  more  policies.  This  has  a  bearing  on 
restrictive  legislation  in  this  way,  namely  :  the  present 
laws  generally  prevent  these  forms  of  insurance  being 


OTHER  PERSONAL  INSURANCE.  29 

undertaken  by  one  institution,  a  restriction  evidently 
unwise  and  impolitic.  In  some  States  the  formation  of 
a  company  to  furnish  illness  or  disability  insurance  is  not 
permitted  under  the  law.  There  should  certainly  be  no 
restriction  against  the  furnishing  of  all  these  forms  of 
insurance  by  one  company. 

Singularly  enough,  while  this  is  not  permitted,  the 
combination  of  the  form  of  personal  insurance,  known  as 
individual  accident  with  other  forms  of  so-called  casualty 
insurance,  including  a  variety  of  insurances  of  a  most 
diverse  character,  has  been  freely  permitted.  It  is 
possible  that  personal  insurance  has  not  lost  by  the  com- 
bination ;  it  would  be  difficult  to  prove  that  it  tad.  But 
it  would  be  very  easy  to  prove  that  it  has  not  gained,  for 
certainly  no  argument  can  be  offered  to  establish  that  it 
has.  There  is  no  necessary  connection,  for  instance, 
between  individual  casualty  insurance  and  employers' 
liability  insurance.  Indeed,  it  is  possible  for  the  same 
harshness  to  creep  into  individual  accident  adjustments 
which  usually  obtains  in  adjustments  under  the  other 
policies  ;  and  that  would  be  an  evil.  There  is  evidence 
that  the  possibility  of  this  evil  is  not  imaginary ;  a 
certain  company,  otherwise  unimpeachable,  has  in  recent 
years  earned  an  unenviable  reputation  for  harsh  adjust- 
ments. Since  there  is  no  apparent  occasion  for  permitting 
these  unrelated  branches  of  insurance  to  be  written  by 
one  company,  if  we  were  at  the  beginning,  it  might  seem 
wise  to  restrain  them  from  so  doing.  But  the  fact  that 
such  mixed  businesses  are  already  established  and  that 
while  there  are  no  evidences  of  benefit  from  the  combi- 
nation, there  are  also  no  evidences  of  harm,  militates 
against  the  advisability  of  such  restriction.  Moreover,  it 
is  probable  that  with  the  removal  of  the  foolish  restric- 
tions now  upon  life  insurance  companies  the  personal 
insurance  which  they  could  supply  in  combination  would 


30  RESTRICTIVE  STATUTES. 

prove  so  much  more  attractive  that  its  superiority  would 
render  restrictive  legislation  unnecessary. 

The  fundamental  principle,  it  cannot  be  too  often 
repeated,  of  all  insurance  is  indemnity.  The  payment  of 
money  to  a  person,  who  has  suffered  a  loss  less  than  the 
money  paid,  is  not  proper  for  an  insurance  organization; 
and  is  also  against  public  policy  as  being  likely  to  aggra- 
vate the  evils  which  insurance  was  intended  to  reduce,  to 
increase  the  general  loss  by  the  workings  of  the  process 
of  distribution.  The  danger  of  over-insurance  is  familiar 
to  all  who  are  engaged  in  this  branch  of  the  work  and  it 
is  hardly  probable  that  laws  to  restrain  companies  from 
it  are  needed  or  will  be.  A  possible  exception  appears  in 
the  now  popular  practice  of  doubling  the  amount  of  the 
indemnity  when  injury  occurs  during  a  journey  or  voyage. 
This  may  not  be  objectionable  when  confined  to  indem- 
nity for  death  but  is  suspicious  when  covering  also  loss  of 
time  or  of  efficiency  or  both.  Persons  familiar  with  the 
matter  will  bear  witness  that  one  of  the  most  frequent 
forms  of  self-inflicted  injuries  is  that  which  results  in 
making  the  person  a  cripple,  through  the  loss  of  some 
member  which  is  of  little  service  to  the  insured,  to  gain 
the  round  lump  sum  paid  by  the  company  upon  the 
occurrence  of  such  disability. 


LIABILITY  INSURANCE. 


When  you  pass  beyond  insuring  a  man  against  his 
misfortune  to  insuring  him  against  his  own  wrong,  you 
have  taken  a  very  serious  step.  A  man  is  never  liable 
to  others  for  injuries  unless  the  same  have  been  inflicted 
through  his  own  intent  or  negligence.  As  the  dominion 
of  men  over  enterprises  has  been  extended  through  the 
limited  liability  company  system,  the  sense  of  direct 
responsibility  has  been  greatly  lessened,  perhaps  too 
greatly.  Men  permit  persons  to  be  daily  murdered 
through  neglect  in  the  management  of  transportation 
corporations,  for  instance,  who  would  feel  immediately 
responsible  if  their  coachmen  with  them  in  the  carriages 
were  to  run  down  pedestrians.  The  sense  of  responsi- 
bility is  weakened  as  the  enterprise  becomes  of  such 
magnitude  that  it  is  impossible  for  the  managers  to 
personally  supervise. 

Our  laws  were  not  devised  to  meet  such  cases ;  such 
cases  were  unknown  when  the  English  laws  grew  up 
from  the  customs  of  the  people.  Such  negligence  on  the 
part  of  individuals  whom  the  law  recognized,  was  dealt 
with  almost  as  a  crime  and  the  injured  could  often  recover 
not  merely  proved  damages  but  also  penal  damages.  But 
there  is  a  sense  of  bewilderment  when  one  attempts  to 
fix  the  responsibility  in  the  case  of  a  corporation.  The 
New  York  laws  now  provide  that  the  corporation  may 

31 


3«  LIABILITY  INSURANCE. 

be  indicted,  and  the  other  day  the  trolley  railroad  of 
Brooklyn  was  indicted  for  murdering  people  in  the 
streets.  But  means  are  not  yet  at  hand  to  hold  the 
proper  persons  accountable.  For  instance,  the  laws  are 
so  defective  that  motormen  on  that  same  system  are 
imprisoned  by  the  city  if  they  run  their  cars  above  a 
certain  speed  and  discharged  by  the  company  if  they  do 
not  do  so.  But  the  laws  are  not  so  constructed  as  to 
make  it  possible  to  hold  the  company  and  its  managers 
accountable.  The  motorman  is  arrested  j  ust  as  if  he  were 
an  independent  driver  or  the  streets,  when,  as  a  matter 
of  fact,  he  is  as  much  a  mere  cog  in  a  wheel,  a  thing 
without  volition  in  this  matter  as  is  the  motor  or  the  car. 

Undoubtedly,  these  liability  losses  are  often  grievous 
and  serious  things,  against  which  a  prudent  man  would 
do  well  to  insure.  Want  of  means  often  renders  a  man 
or  company  amenable  for  negligence  when  there  would 
have  been  no  neglect,  had  it  been  possible  to  avoid  it. 
What,  for  instance,  is  to  be  expected  of  a  struggling  rail- 
road, burdened  with  debt  and  unable  to  earn  running 
expenses?  Such  a  condition  was  responsible  for  the 
dreadful  Chatsworth  disaster. 

Landlords,  who  were  then  practically  the  sole  employ- 
ers of  labor,  were  the  influential  men  in  forming  earty 
English  law,  which  did  not  recognize  the  employe's  right 
to  recover  from  his  employer  for  injuries  received  while 
in  his  service.  Even  now  employers  are  in  many  places 
not  liable  for  injuries  inflicted  upon  employes  by  the 
neglect  of  their  co-employes,  though  they  are  liable  for 
such  injuries  to  any  other  person.  This  law  is  being 
slowly  changed  throughout  this  country. 

This  liability  for  injuries  to  employes,  being  of  compara- 
tively recent  origin,  has  been  regarded  as  especially 
oppressive  by  employers,  and  was  the  occasion  of  the 
invention  and  popularization  of  liability  insurance.  Such 


LIABILITY  INSURANCE.  33 

injuries  are  common,  altogether  too  common  in  many 
branches  of  manufacture  and  especially  in  certain  facto- 
ries. When  the  establishment  is  large,  there  is  a  consider- 
able drain  every  year  because  of  claims  for  damages 
through  personal  injuries  to  employes.  These  claims 
vary  in  amount  and  are  often  very  annoying  because 
connected  with  circumstances  which  reflect  upon  the 
employer's  care  for  the  lives  of  his  employes,  and  at  the 
same  time  appeal  to  his  instincts  of  humanity.  Some- 
times, too,  they  are  so  considerable  as  to  turn  a  profitable 
year's  business  into  a  loss.  In  consequence  of  all  these 
things  the  employers  of  labor  have  so  felt  the  need  of 
insurance  of  this  sort  that  in  this  country  it  has  become 
incredibly  popular  in  very  few  years. 

Yet  it  is  exceedingly  doubtful  whether  such  insurance 
is  legal  at  all  or  not,  and  yet  more  doubtful  whether  it 
ought  to  be.  It  is  a  common  complaint  of  public  carriers 
and  others  that  they  are  continually  raided  by  claimants 
and  that  they  cannot  get  justice  before  juries.  Juries  are 
disposed  to  inflict  penal  damages,  perhaps,  whenever  the 
facts  seem  to  warrant  it.  Yet  no  one  who  is  acquainted 
with  the  facts  will  have  the  hardihood  to  deny  that  the 
sense  of  responsibility  for  negligence  is  weak  enough  at 
present  and  the  methods  of  adjusting  such  claims  harsh 
enough.  No  good  end  is  served  by  encouraging  a  less 
strict  sense  of  responsibility  by  permitting  the  negligent 
person  or  corporation  to  be  shielded  behind  an  insurance 
company. 

It  is  very  difficult  to  bring  the  matter  of  the  legality 
of  this  sort  of  insurance  to  the  test.  The  company  and 
the  insured  are  both  interested  in  avoiding  its  being 
brought  to  a  test.  If  there  is  any  litigation,  it  is  ostensi- 
bly between  the  injured  person  and  the  insured,  the 
company  conducting  the  defense  but  not  appearing  in  its 
proper  person.  This  of  itself  is  tainted  with  champerty 


34  LIABILITY  INSURANCE. 

and  might  be  sufficient  to  outlaw  the  system.  But  only 
in  the  rare  case  of  the  injured  person  recovering  from  the 
insured,  and  the  company  then  refusing  to  recognize  its 
liability,  could  the  question  of  the  legality  of  the  insur- 
ance be  at  issue  in  a  suit  brought  by  the  insured  to 
recover.  Then  its  illegality  could  only  be  pleaded  by  the 
company,  which  is  not  likely  to  set  up  such  a  plea.  Still, 
if  the  issue  should  get  squarely  before  any  court  of  com- 
petent jurisdiction,  it  seems  probable  that  the  insurance 
would  be  declared  'illegal  as  in  contravention  of  public 
policy. 

Such  an  issue  might  be  made  by  the  insurance  officer 
of  a  State,  though  it  is  likely  that  the  companies  would 
avoid  it  if  possible  by  withdrawing  from  that  jurisdiction. 
It  is  difficult  to  see  in  what  other  manner  the  issue  could 
be  forced. 

This  form  of  insurance  has  been  fully  recognized  as  an 
evil  in  Great  Britain,  where  it  originated.  A  campaign 
against  it  was  one  of  the  features  of  the  election  which 
brought  Mr.  Gladstone  and  the  liberal  party  into  power. 
A  prohibitive  Act  directed  against  it  was  one  of  the 
measures  which  passed  the  House  of  Commons  and  was 
rejected  by  the  House  of  Lords,  and  which  made  "  Down 
with  the  Lords  ! "  an  issue  for  all  future  campaigns.  The 
same  difficulty  about  forcing  an  issue  about  its  legality 
under  present  laws  would  be  experienced  there  as  here. 
In  France,  where  the  system  is  gaining  a  considerable 
foothold,  the  distinguished  statesman,  M.  Bourgeois,  has 
proposed  a  bill  which  will  take  the  whole  subject  out  of 
the  hands  of  the  private  companies  and  vest  it  in  the  State, 
making  the  insurance  and  provision  for  injured  employes 
obligatory.  In  Germany  the  insurance  is  already  obliga- 
tory and  definite,  the  State  standing  as  sponsor  for  the 
protection  of  the  workingmen  ;  this  system  was  the  final 
and  crowning  act  of  Bismarck's  public  service. 


LIABILITY  INSURANCE.  35 

This  form  of  national  liability  insurance  removes  most 
of  the  objections  which  lie  against  the  system.  These 
objections  are  the  weakening  of  the  sense  of  responsibility 
and  the  adoption  of  meaner  methods  of  adjusting  such 
claims.  In  this  latter  particular,  it  is  notorious  that  in 
this  country  the  English  companies,  though  so  offensive 
in  their  domicile  as  to  occasion  repressive  legislation,  are 
much  less  reprehensible  than  our  own.  Under  any  State 
system  yet  proposed,  the  negligent  employer  would  be 
held  more  strictly  accountable  than  at  present  when 
without  insurance,  whenever  negligence  of  a  criminal 
character  actually  existed.  The  insurance  would  afford 
relief  to  the  injured  and  protection  beyond  the  relief,  by 
enforcing  factory  regulations  so  as  to  avoid  danger  of 
injury.  These  would  be  benefits ;  but  the  present  system 
tends  to  increase  the  hardships  of  the  injured  and  to 
make  employers  more  careless. 

It  may  be  said  on  the  other  side  that  the  companies 
have  an  interest  in  making  factory  conditions  better,  and 
that  they  will  enforce  this  by  discriminations  in  regard 
to  rates.  Such  discrimination  has  not  yet  put  m  an 
appearance  to  any  degree  worth  mentioning,  and  will 
not ;  for  the  reason  that  the  sources  of  negligence  are  not 
of  a  sort  which  appear  to  inspectors.  Defects  of  con- 
struction may  be  found  and  corrected,  but  otherwise  the 
situation  is  not  improved. 

Some  of  the  evils  of  the  system  are  modified  by  the 
formation  of  a  mutual  company  among  the  employes  of 
a  large  concern,  to  which  mutual  company  the  concern 
pays  a  certain  sum  or  a  certain  percentage  of  the  amount 
required  in  consideration  of  being  relieved  of  further 
responsibility.  In  other  words,  the  employes  take  upon 
themselves  the  responsibility,  in  consideration  of  a  stipu- 
lated sum.  This  system  has  prevailed  to  a  considerable 
extent  in  Great  Britain,  and  has  been  adopted  by  several 


36  LIABILITY  INSURANCE. 

companies  in  this  country.  The  "contracting  out"  was 
one  of  the  principal  evils  against  which  Gladstone's 
memorable  bill  was  directed.  As  a  matter  of  fact,  while 
it  should  have  been  beneficent,  this  system  has  proven  in 
many  cases  the  means  of  at  once  tyrannizing  over 
employes  and  escaping  just  responsibilities. 

On  the  whole,  so  far  as  private  corporations  are  con- 
cerned, it  is  safe  to  say  that  the  restrictive  statutes  needed 
are  such  as  would  restrain  all  from  engaging  in  liability 
insurance.  At  the  same  time,  measures  might  be  taken 
to  avoid  holding  employers  too  strictly  accountable  for 
injuries  for  which  theii  negligence  is  not  really  responsi- 
ble and  also  to  furnish  immediate  and  adequate  relief  to 
the  toilers  who  are  maimed  in  the  process  of  commercial 
production  and  distribution,  without  regard  to  liability. 
These  measures  cannot  be  effectively  taken  by  any  less  a 
corporation  than  the  entire  community. 


FIRE  AND  OTHER  PROPERTY  INSURANCE. 


The  most  popular  form  of  insurance  has  been  insur- 
ance of  property  against  fire.  So  firm  a  hold  has  this 
form  of  insurance  upon  the  public  that,  if  solicitation 
were  entirely  abolished  by  all  the  companies,  it  is  prob- 
able that  the  volume  of  insurance  would  not  be  very 
greatly  lessened,  especially  if  convenient  offices  were 
supplied  at  which  insurance  could  be  obtained.  Busi- 
ness men  consider  that  it  is  a  mere  matter  of  business 
prudence  to  carry  an  adequate  insurance.  Not  to  do  so 
argues  want  of  sense. 

Still  there  is  little  doubt  that  the  manner  of  operating 
the  fire  insurance  business  has  tremendously  increased  the 
fire  hazard  in  this  country  as  well  as  in  other  countries 
where  the  same  system  is  followed,  and  where  the  busi- 
ness has  attained  much  growth.  The  trouble  is  that  in 
this  class  of  insurance  you  are  directly  dealing  in  values  ; 
the  insurance  is  a  bet  against  a  value  concerning  which 
the  other  bettor  knows  more  than  any  other  person  can 
possibly  know.  Moreover,  values  are  queer  things. 
What,  for  instance,  is  the  value  of  a  stock  of  goods  just 
before  a  dealer  fails  in  business?  The  whole  ground  for 
estimating  values  is  insecure  and  unstable  ;  and  it  is  not 
singular  that  the  adjustment  of  these  losses  should  be 
one  of  the  most  delicate  and  difficult  tasks.  The  root  of 

37 


38  FIRE  AND  OTHER  PROPERTY  INSURANCE. 

the  difficulty  is  that  it  is  easily  possible  for  a  sudden  turn 
to  make  it  more  profitable  for  the  insured  to  lose  his 
property  and  gain  the  insurance  than  to  keep  the 
property. 

It  may  as  well  be  conceded  that  fire  insurance  compa- 
nies have  made  no  adequate  provision  to  prevent  this. 
In  no  part  of  the  country  is  the  crime  of  incendiarism 
so  wide- spread  and  so  generally  successful  as  in  New 
York  City,  under  the  very  noses  of  the  underwriters. 
There  the  system  of  adjusters  for  the  insured  has  grown 
into  popularity  to  offset  the*  shrewdness  of  experts 
employed  by  the  companies  and  we  have  recently  been 
treated  to  the  spectacle  of  a  conspiracy  which  takes  in 
adjusters  for  both  parties,  factors  and  agents  and  even 
policemen  and  firemen.  And  no  effort  worthy  the  name 
is  being  made  to  shut  out  the  possibility  of  this  sort  of 
thing.  The  fact  is  that  the  companies  are  really,  if  not 
openly,  proceeding  on  the  basis  that  it  is  their  business 
to  gauge  risks,  not  to  prevent  losses  and  that  if  they 
make  rates  high  enough  to  cover  the  losses  and  leave  a 
margin,  they  have  done  all  that  is  required  of  them. 

There  is  this  element  of  truth  in  this  proposition,  that 
it  really  is  the  business  of  the  public  to  see  that  under- 
writers do  not  so  manage  the  fire  insurance  business  that 
the  public  interests  are  injured  rather  than  benefited. 
And  if  the  public  does  not  attend  to  the  matter  of  pro- 
tecting itself,  it  has  but  itself  to  blame.  But  it  is  also 
true  that  those  engaged  in  insurance  are  themselves  con- 
stituent parts  of  the  public  and  that  they  are  directly 
interested  in  so  conducting  their  business  that  it  may 
deserve  public  patronage.  Moreover,  they  are  more 
familiar  with  the  facts  and  the  premises  and  should  be 
able  to  clearly  demonstrate  what  is  needed. 

Doubtless  more  regulation  than  restriction  is  needed. 
The  arranging  by  law  for  a  system  of  determining  the 


FIRE  AND  OTHER  PROPERTY  INSURANCE.  39 

causes  of  fires  and  possibly  also  of  determining  the  value 
of  destroyed  property,  would  do  much  to  prevent  the 
wanton  waste  of  wealth  which  now  curses  the  land. 
But  something  is  needed  which  will  curb  over-insurance 
at  the  fountainhead,  by  completely  taking  away  the 
incentive.  This  is  done  under  the  French  law  by  abso- 
lutely prohibiting  one  from  recovering  insurance  for  losses 
because  of  fires  which  originate  in  the  premises,  occupied 
by  himself.  This  is  believed  to  have  been  very  effective, 
especially  in  Paris  and  wherever  the  construction  of 
buildings  is  such  that  fires  are  not  sure  to  burn  other 
buildings.  But  we  would  find  it  objectionable  in  two 
particulars  in  this  country.  In  the  first  place,  insurance 
on  detached  property  would  thus  be  completely  shut  out 
and  the  value  of  insurance  to  all  honest  persons  would 
be  greatly  reduced.  The  cost  of  incendiarism  now  falls 
upon  the  honest  insured  as  does  the  burden  of  defaulted 
bills  upon  buyers  who  pay  their  bills ;  but  the  burden  of 
the  uninsured  hazard  would  be  more  unendurable  to  the 
individual  than  the  premium  burden.  Else  would  busi- 
ness men  now  go  without  insurance.  It  is,  after  all,  an 
heroic  method  to  prohibit  insurance  as  in  France  like 
whipping  a  whole  school  in  order  to  be  sure  not  to  let  the 
culprit  go  unpunished ;  the  punishment  is  visited  not 
merely  upon  the  innocent  as  well  as  the  guilty,  but  not 
upon  the  guilty  at  all.  In  the  second  place,  in  our  nation 
of  frame  rows  it  is  by  no  means  sure  that  a  quick-witted 
incendiary  will  always  set  fire  to  his  own  premises. 
Such  are  not  always  ignorant  that  to  put  the  torch  to  the 
other  end  of  the  row  will  just  as  surely  mature  the 
insurance  and  at  the  same  time  divert  suspicion.  A  case 
where  that  is  believed  to  have  been  the  case  has  come 
under  my  notice. 

But,  while  the  denial  of  insurance  in  all  cases  where 
the  fire  begins  on  one's  own  premises  is  too  heroic  a 


' 


40  FIRE  AND  OTHER  PROPERTY  INSURANCE. 

remedy,  there  seems  no  reason  why  the  same  should  not 
be  applied  in  a  modified  form  which  may  be  either  of 
the  following  :  The  prohibition  of  the  payment  of  more 
than  a  certain  percentage  of  the  loss  or  the  prohibition 
of  the  payment  of  insurance  when  fires  occur  on  one's 
own  premises  and  are  not  clearly  explained  by  an  acci- 
dental cause.  Perhaps,  the  latter  of  these  devices  might 
be  only  an  invitation  for  more  perjury,  but  the  former 
should  be  effective. 

A  restriction  of  this  general  character  is  almost  more 
desirable  in  the  case  of  steam  boiler  or  elevator  insurance 
than  in  that  of  fire  insurance,  because  of  the  danger  to 
human  life  which  is  always  involved  in  elevator  acci- 
dents and  boiler  explosions.  Some  men  are  singularly 
callous  to  the  injuries  which  their  sordidness  or  reckless- 
ness inflict  upon  others ;  but  these  are  commonly  the 
very  men  who  take  the  most  care  to  avoid  injury  to 
themselves.  A  dreadful  instance  of  this  callousness  was 
given  publicity  in  Chicago  some  years  ago. 

Recent  years  have  seen  a  renaissance  of  the  Lloyds 
system  of  individual  underwriting.  It  is  to  be  feared 
that  the  system  has  been  revived  for  the  purpose  of 
escaping  legal  and  moral  obligations.  The  system  was 
originally  discarded  because  it  was  discovered  that 
greater  responsibility  and  certitude  could  be  obtained 
through  joint  stock  companies.  It  is  not  improbable 
that  it  has  been  given  new  life  for  the  same  reason, 
namely :  That  greater  responsibility  and  certitude  is 
attained  through  joint  stock  companies.  In  other  lines 
than  insurance,  the  limited  liability  company  system  has 
often  enabled  men  to  dodge  their  liabilities.  Many  large 
fortunes  are  the  result  of  such  debt-dodging.  But  in 
insurance,  thanks  to  protective  legislation  and  public 
inspection,  the  contrary  has  been  the  case.  One  excep- 
tion to  this  is  where  inspection  does  not  inspect,  as  in  the 


FIRE  AND  OTHER  PROPERTY  INSURANCE.  41 

case  of  New  York  under  the  present  administration. 
But  even  the  appearance  of  inspection  does  good,  and 
the  departments  of  other  States  can  offset  this  by  mak- 
ing examinations  themselves  whenever  they  bestir  them- 
selves. The  Lloyds  escape  this  inspection  entirely.  They 
make  use  of  the  limited  liability  permission  for  special 
partnerships  and  then  proceed  as  private  individuals, 
who  are  free  from  public  supervision.  The  objects  in 
so  doing  may  be  summed  up  as  follows  :  To  escape  the 
requirement  to  provide  a  sufficient  cash  capital,  to  escape 
the  taxes  and  other  public  burdens  of  insurance  compa- 
nies, and  to  escape  the  legal  requirement  to  carry  on  hand 
sufficient  re-insurance  reserves.  The  first  two  of  these 
objects  are  insignificant  in  comparison  with  the  last.  It 
only  needs  to  be  explained  that,  if  the  shareholders  of 
regular  companies  were  permitted  to  divide  all  the  pre- 
miums and  merely  let  the  capital  stand  to  meet  the 
losses,  they  could  in  some  cases  draw  down  more  than 
ten  times  their  capital  stock.  The  premiums  are  the 
fund  from  which  losses  are  expected  to  be  met.  The 
Lloyds  system  does  not  hold  the  associated  members 
responsible  beyond  the  original  undertakings  although 
they  may  have  divided  these  unearned  premiums  among 
themselves. 

Fancy  the  same  thing  being  applied  to  banking,  namely: 
That  men  should  associate  to  do  a  banking  business, 
limit  their  liability  and  then  treat  the  deposits  as  money 
earned.  The  unearned  premiums  in  insurance  are  of  the 
nature  of  deposits  to  pay  for  insurance  to  be  furnished  in 
future.  The  dissipation  of  these  premiums  before  they  are 
fully  earned  amounts  in  principle  to  a  malversation  of 
trust  funds  and  certainly  should  not  be  allowed.  The 
right  to  do  an  insurance  business  is  claimed  for  indi- 
viduals on  the  general  ground  that  whatever  business  is 
legitimate  at  all  is  legitimate  for  the  individual.  This 


42  FIRE  AND  OTHER  PROPERTY  INSURANCE. 

could  hardly  stand  against  public  policy.  But  in  any 
case,  the  right  of  a  man  to  limit  his  liabilities  is  a  mere 
statutory  right,  given  by  law  and  custom  and  which  can 
be  taken  away  without  infringing  upon  his  constitu- 
tional rights.  The  engaging  in  individual  underwriting 
under  a  limit  of  liability  excepting  through  the  medium 
of  limited  liability  stock  companies  should  certainly  be 
prohibited. 


CREDIT,  SURETY,  BURGLARY,  TITLE  AND 
MORTGAGE  INSURANCE. 


The  same  argument  which  shows  it  to  be  unwise  to 
permit  insurance  against  one's  own  great  laches,  tort  or 
crime,  shows  that  insurance  against  the  laches,  torts  or 
crimes  of  others  would  be  most  commendable.  For,  as 
the  former  may  be  expected  to  encourage  criminal  care- 
lessness, indifference  to  the  rights  of  others  and  even  the 
commission  of  crime,  the  latter  may  be  expected  to  dis- 
courage all  these,  since  strong  organizations  of  men  are 
thus  brought  to  have  a  financial  interest  in  seeing  that 
whosoever  trespasses  upon  the  rights  of  one  of  them  is 
properly  punished. 

It  is  a  fact,  well  understood  by  students  of  economy, 
that  the  losses  because  of  uncollectible  debts  are  not,  as  a 
whole,  borne  by  the. dealers  who  appear  to  lose  but  that, 
instead,  the  buyers  who  pay  then*  bills,  are  compelled  to 
stand  the  loss  in  the  form  of  enhanced  prices.  Solvent 
purchasers,  taken  as  individuals,  can  do  little  to  prevent 
being  saddled  with  this  loss,  as  they  cannot  make  dealers 
prudent  about  credits  and  cannot  increase  the  efficiency 
of  collecting  agents.  The  dealers  have,  through  the 

43 


44  CREDIT,  SURETY,  BURGLARY,  TITLE 

medium  of  collection  and  mercantile  agencies,  done  some- 
thing to  enable  them  to  judge  more  intelligently  of 
credits  and  to  collect  from  defaulting  debtors.  But  the 
application  of  insurance  to  this  form  of  risk  does  some- 
thing which  mere  circumspection  cannot  do  ;  if  properly 
applied,  it  will  bring  home  to  each  dealer  the  necessity  of 
keeping  his  line  of  credit  well  in  hand,  so  that  he  may 
not  lose  the  benefits  of  insurance.  But,  in  order  that  this 
may  take  place,  it  will  be  necessary  that  there  be  tangible 
benefits.  The  present  regulations  of  the  credit  insurance 
companies,  almost  without  exception,  seek  to  avoid 
giving  more  than  about  ten  months'  insurance  for  a 
year's  premium ;  and  if  this  be  not  checked,  the  public 
may  not  be  convinced  of  its  utility.  Perhaps  no  prohib- 
itory laws  are  needed,  unless  to  prohibit  this  sharp 
practice ;  in  general,  this  form  of  insurance  should  be 
fostered. 

Closely  akin  is  insurance,  not  merely  against  laches  but 
against  malversation  of  funds  which  may  either  be  a  tort 
or  a  crime.  No  form  of  insurance  better  illustrates  the 
real  nature  of  insurance  than  do  corporate  bonds  of 
surety.  Nobody  would  expect  a  bondsman  to  return  the 
face  of  his  bond  when  there  was  default  in  a  small  part 
of  that  amount.  It  is  recognized  everywhere  that  the 
very  essence  of  surety  is  indemnity.  The  transfer  of  this 
class  of  insurance — for  it  is  insurance,  whether  done  by 
individuals  for  nothing  or  a  company  for  a  consideratiou 
—to  a  company  should  be  beneficial,  mainly  for  the 
reason  that  rogues  are  more  likely  to  be  brought  to  bay 
and  punished  for  their  crimes.  When  friends  are  the 
sureties,  the  chances  are  that  this  will  not  be  done  ;  they 
are  likely  to  argue  that  they  stand  a  better  chance  to 
recover  if  they  do  not  cause  arrest  and,  in  any  case,  they 
are  likely  not  to  prosecute,  merely  because  there  is 
nothing  to  gain  by  it.  But  the  surety  companies  rightly 


AND  MORTGAGE  INSURANCE.  45 

calculate  that  they  have  everything  to  gain  by  prosecut- 
ing, because  by  so  doing  they  hold  before  all  others 
whom  they  bond,  a  warning  example.  Consequently, 
except  when  friends  step  forward  and  let  the  surety  com- 
panies out,  they  prosecute  to  the  bitter  end  ;  which  fact 
at  once  brings  friends  to  the  rescue  and  deters  others 
from  entering  upon  a  career  of  embezzlement.  Anything 
which  tends,  like  this,  to  a  stricter  enforcement  of  the 
laws  is  a  benefaction. 

But  it  is  very  easy  for  the  surety  companies  to  go 
beyond  merely  guaranteeing  the  honesty  and  fidelity  of 
persons ;  there  are  many  cases  in  which  the  bond  really 
covers  much  more  than  that.  For  instance,  life  insurance 
agents  are  not  in  general  permitted  to  take  notes  for 
premiums,  except  on  their  own  responsibility.  Still, 
practically  all  agents  do  take  them.  For  such  premiums, 
the  agent  and  his  bondsmen  are  held,  whether  he  ever 
really  collected  in  cash,  or  not ;  thus  the  bondsmen  are 
really  guaranteeing,  not  merely  the  honesty  of  the  agent, 
but  his  business  ability  and,  where  the  transactions 
through  him  are  too  few  to  afford  him  a  safe  average,  his 
business  fortune  as  well.  This  would  not  make  any 
especial  difference,  were  it  not  that  the  surety  companies 
are  likely  to  attempt  using  the  same  drastic  means  of 
arousing  the  agent's  friends  and  of  warning  the  other 
persons  bonded,  as  it  employs  when  actual  embezzlement 
has  taken  place.  The  State  cannot  afford  to  foster  that, 
and  it  might  be  well  to  guard  against  it  either  by  a 
prohibitory  statute  or  a  punitive  one  for  false  arrest. 
Possibly,  however,  existing  laws  suffice;  and,  at  all 
hazards,  as  is  well  known,  the  surety  companies  avoid 
this  class  of  risks  because  of  the  much  greater  likelihood 
of  loss. 

Notwithstanding  which,  the  more  venturesome  of  them 
have  exhibited  a  disposition  to  underwrite  contractors' 


46  CREDIT,  SURETY,  BURGLARY,  TITLE 

bonds  and  other  similar  undertakings  which  involve  the 
risk  of  business  ability  mainly  and  fidelity  to  trust  not  at 
all  or  in  a  very  small  degree.  This  is  not  open  to  the 
objection  named  since  in  most  cases  there  are  no  possible 
grounds  for  prosecution.  Outside  of  the  risky  nature  of 
such  insurances,  there  is  nothing  to  urge  against  them. 
There  is  little  danger  of  corporate  suretyship  making 
those  who  are  bonded  less  cautious  than  they  are  when 
bonded  by  private  persons.  The  probabilities  are  that 
they  will  be  more  careful,  for  a  corporation  is  a  relentless 
critic  where  it  is  financially  interested,  and  would  be 
likely  to  take  more  precautions  against  bad  management 
than  do  private  bondsmen. 

A  step  further  is  insurance  against  actual  crime  such  as 
is  contemplated  in  burglary  insurance.  Probably  this 
will,  in  time,  be  the  most  effective  preventive  of  burg- 
lary of  financial  institutions  that  could  be  devised.  It 
may  surround  the  whole  country  with  a  preventive 
detective  force  such  as  now  operates  in  financial  centers. 
The  nation  and  even  the  world  are  small  affairs  to  cor- 
porations which  have  their  representatives  everywhere. 
The  general  patronage  of  this  sort  of  insurance  will  make 
of  the  insurance  company  one  gigantic,  centralized  vigi- 
lance committee.  It  is  well  known  that,  when  the  usual 
operations  of  the  law  failed  to  cope  with  horse-stealing  in 
an  early  day  in  the  west,  the  organization  of  the  owners 
of  horses  into  a  protective  society  soon  put  down  the  evil 
effectually.  Burglary  insurance  should  have  a  similar 
effect,  and  should  by  the  detection  and  enforcement  of 
the  laws  against  this  crime  cut  short  the  careers  of  those 
who  now  prey  upon  society  throughout  long  lives. 

Title  insurance  is  a  peculiar  outgrowth  of  our  foolish 
laws  relative  to  transfers  of  real  property,  in  which  mat- 
ter we  are  copying  the  English  laws  which,  while  grow- 
ing out  of  English  historical  conditions,  are  utterly  out 


- 


AND  MORTGAGE  INSURANCE.  47 

of  place  in  this  country.  There  should  be  no  such  ques- 
tion about  real  titles  as  would  render  such  insurance 
necessary  or  possible.  Its  popularity  arises  entirely  from 
the  difficulty  of  ascertaining  from  abstracts  of  title  just 
what  counter-claims  there  may  be  against  property.  The 
passage  of  laws,  denning  titles  and  arranging  for  a 
simpler  system  of  registry,  would  remove  this  system  of 
insurance  from  the  arena.  It  should  be  thus  removed. 
There  is  no  occasion  for  increasing  the  hazards  of  modern 
business  life  by  such  artificial  means  and  the  cause  of 
the  hazard  should  be  destroyed.  Even  as  it  is,  the  sys- 
tem of  insurance  is  open  to  grave  criticism  in  its  actual 
operation ;  for  the  companies  generally  do  business 
within  a  comparatively  small  radius  wherein  much  of 
the  property  is  subject  to  one  original  title.  Thus  the 
loss,  if  there  should  be  one,  would  be  severe  and  might 
easily  ruin  the  company  and  destroy  the  protection. 
But  the  necessity  for  this  form  of  insurance  will  doubt- 
less be  avoided  by  the  introduction  of  -a  different  system 
of  real  estate  transfer  and  registry. 

The  issuing  of  debentures  and  otherwise  guaranteeing 
mortgages  have  not  been  generally  classified  as  insurance 
operations,  though  they  are  as  truly  underwriting  as  is 
fire  insurance.  This  is  a  form  of  credit  insurance  which, 
when  properly  regulated,  might  greatly  extend  the  loan- 
ing on  realty  or  even  on  personalty  with  safety  into 
channels  which,  by  ordinary  methods,  are  risky.  For,  of 
course,  it  is  the  business  of  underwriting  to  cover 
hazards,  and  by  averaging  the  loss  turn  an  insecure  opera- 
tion into  a  safe  one.  The  affinity  between  insurance  and 
itself  is  recognized  by  the  most  democratic  of  the  com- 
panies for  mortgage  equalization,  the  building  and  loan 
associations,  which  call  the  profit  charged  in  excess  of 
ordinary  loaning  rates,  "  premium,"  thus  acknowledging 
that  it  represents  the  price  paid  to  cover  a  risk  of  loss. 


48         CREDIT,  SURETY,  BURGLARY,  ETC.  INSURANCE. 

There  have  been  few  serious  losses  in  these  mutual  asso- 
ciations but  most  stupendous  losses  in  the  mortgage  and 
debenture  companies,  owing  not  a  little  to  the  want  of  a 
system  for  reserving  for  unearned  premiums.  But,  at 
bottom,  there  is  nothing  objectionable  in  the  system  and 
no  necessity  for  restraining  statutes. 


REGULATION. 


Legislatures  have  a  passion  for  regulation.  Perhaps 
their  favorite  conception  of  regulation  is  to  pile  on  petty 
and  annoying  restrictions;  but  nothing  pleases  them 
better  than  to  find  something  to  regulate.  All  the  more 
agreeable  is  the  task,  if  the  business  to  be  regulated  has 
slowly  and  painfully  evolved  without  the  assistance  of 
favorable  legislation  and  even  against  the  spirit  of 
adverse  legislation.  This  feverish  anxiety  to  try  his 
hand  is,  in  the  man,  the  legitimate  successor  of  the 
experimental  disposition  of  the  child  who  takes  a  clock 
to  pieces  to  readjust  it. 

In  other  countries,  and  notably  in  the  colony  of  New 
South  Wales,  Australia,  insurance  companies  have  pro- 
gressed to  a  very  high  degree  of  economy,  efficiency  and 
responsibility,  practically  without  regulation,  except  of 
the  most  primitive  and  elementary  sort,  such  as  is  of 
general  application.  The  most  successful  of  all  life  insur- 
ance companies,  in  providing  for  the  needs  of  the  insured 
at  the  lowest  cost  and  most  effectively  and  safely,  is  to  be 
found  there ;  and,  in  a  conversation  with  me,  its  manager 
modestly  asserted  that  the  absolute  freedom  of  action 
allowed  his  company  was  chiefly  responsible  for  this 
fortunate  result.  It  is,  in  any  case,  doubtless  true  that 
the  net  results  of  regulative  laws  are  not  what  the  friends 
of  good  methods  might  desire.  This  is  owing,  largely, 
to  the  fact  that  this  sort  of  regulation  is  undertaken  by 

49 


50  REGULATION. 

men  who  are  not  fully  informed  on  the  subject  and  that 
the  laws  which  are  enacted  are  always  the  outcome  of 
the  struggles  of  adverse  interests  and  are,  not  infrequently, 
compromises  which  really  accomplish  nothing.  In  the 
United  States,  the  most  of  that  which  is  valuable  in 
insurance  regulation,  has  been  obtained  either  in  answer 
to  a  practically  united  demand  of  the  companies  inter- 
ested or  by  the  active  intervention  of  some  unusually 
able  and  independent  insurance  superintendent  or  com- 
missioner. But,  when  results  of  great  value  have  been 
thus  attained,  they  have  been  confined  to  one  State  and 
the  want  of  uniformity  has  been  an  evil  which  almost 
offsets  the  advantages  of  the  good  laws  that  may  have 
been  put  in  force  in  some  States. 

So  far  as  this  country  is  concerned,  it  is  altogether  too 
late  to  discuss  the  desirability  of  regulative  statutes. 
Regulation  is  here,  and  here  to  stay.  It  is,  perhaps, 
possible  to  show  that  regulation  began,  also,  because  it 
was  imperatively  needed  and  as  the  result  of  a  strong 
disposition  of  insurance  companies  to  wildly  speculate 
and  to  behave  in  a  harsh  and  unfair  manner  toward  the 
insured.  But,  whether  the  responsibility  for  the  earliest 
regulation  rests  upon  the  companies  or  meddlesome  legis- 
lators matters  very  little  at  this  time,  since  the  fact  of 
insurance  departments  and  regulation  is  fixed  in  every 
State  in  the  nation.  Probably,  the  evil  of  want  of  uni- 
formity might  be  cured  by  national  supervision,  though, 
under  our  present  Constitution,  national  supervision 
could  hardly  be  extended  to  companies  which  confined 
their  operations  to  their  domicile  and  the  number  of  such 
companies  could  be  trusted  to  increase  if  there  were  an 
advantage  in  so  doing.  The  other  manner  in  which 
practical  uniformity  might  be  brought  about,  is.  through 
the  imitative  disposition  of  legislators.  The  standard 
fire  insurance  policies  of  very  many  States  are  now  alike ; 


REGULATION.  51 

in  nearly  all  the  States  the  standards  of  solvency  for  all 
sorts  of  insurance  companies  are  substantially  the  same. 
Through  the  medium  of  the  voluntary  meetings  of  the 
heads  of  insurance  departments,  the  current  in  favor  of 
uniformity  of  reports  and,  in  the  end,  of  regulations  of 
all  sorts  is  constantly  becoming  stronger.  There  is  at 
present  no  indication  that  this  uniformity  will  be 
dictated  by  the  companies,  for  the  department  officials 
have  independent  and  original  views  on  these  matters. 
Altogether,  in  view  of  the  recent  expressions  of  these 
gentlemen  in  their  reports  as  well  as  in  convention, 
there  is  reason  to  expect  that  a  general  codification  of 
insurance  laws  along  uniform  and  just  lines  will  soon 
take  place  in  nearly  all  States. 

When  full  and  free  enabling  statutes  have  been  enacted, 
empowering  the  people  to  combine  to  secure  to  each 
other  the  benefits  of  insurance  against  all  possible  risks 
of  loss  or  damage  either  through  mutual  companies  or 
stock  companies,  the  first  problem  which  arises  is  to  lay 
down  rules  regulating  the  management  of  the  companies. 
In  doing  so,  reference  must  be  had  to  the  conveniences 
of  the  time  and  to  the  principles  of  equity.  The  respon- 
sible management  of  any  institution  should  certainly  be 
vested  in  its  owners.  In  the  case  of  a  mutual  company 
the  owners  are  the  members,  a  majority  of  whom  may  be 
considered  to  have  the  right  to  control.  An  opportunity 
should  therefore  be  given  for  that  majority  to  express  its 
will  and  to  enforce  it.  The  best  possible  opportunity 
should  be  given.  In  these  days  of  quick  mails  and  other 
means  of  communication,  the  proxy  system  cannot  be 
considered  the  best  means  that  can  be  afforded  under 
the  conditions.  The  fact  is,  as  everybody  knows,  that 
the  sense  of  mutual  ownership  is  practically  completely 
lost  in  all  proxy-managed  mutual  institutions.  In 
general,  it  may  be  laid  down  as  the  first  principle  of  the 


5a  REGULATION. 

regulation  'of  management  of  mutual  companies  that 
some  system  of  direct  voting  or  of  proportional  or  district 
representation  should  be  directed  as  the  method  of  ascer- 
taining the  will  of  the  owners. 

In  the  case  of  stock  companies,  the  necessity  for  minor- 
ity representation  is  at  times  painfully  evident.  In  the 
case  of  some  companies,  the  surplus  is  immensely  greater 
than  the  capital,  and  the  owner  of  a  limited  amount  of 
the  capital  stock  may  be  put  into  position  to  crowd  the 
minority  stockholders  out  of  the  company  by  piling  up 
surplus  and  not  paying  dividends.  This  has  not  often 
taken  place  in  insurance  companies,  however,  whose 
stocks  are  infrequently  found  in  the  speculative  market ; 
and  a  study  of  this  subject  is  desirable  as  a  preventive 
measure  rather  than  to  cure  an  existing  evil. 

It  has  not  been  considered  necessary  for  the  State  to 
establish  arbitrary  standards  of  solvency  for  ordinary 
stock  or  mutual  corporations.  While  such  corporations  do 
business  largely  on  the  faith  in  their  solvent  condition  of 
persons  who  sell  to  them,  such  faith  is  not  necessary  on 
the  part  of  those  to  whom  they  sell.  Buyers  from  them 
get  actual,  tangible  values  in  concrete  wares.  The 
indemnity  nature  of  insurance  has  already  been  repeat- 
edly adverted  to  in  this  series.  What  buyers  of  insurance 
receive  is  a  promise  to  pay,  upon  a  certain  contingency, 
and  based  upon  the  solvent  condition  of  the  promissor. 
The  ascertaining  that  solvency,  owing  to  the  contingent 
nature  of  the  liabilities,  is  a  delicate  and  difficult  pro- 
ceeding which  it  is  impossible  that  every  citizen  should 
perform  for  himself.  The  best  argument  that  this  should 
be  done  by  responsible  State  authorities,  is  that,  where 
this  is  not  the  case,  individuals  of  repute,  whose  ability 
and  honesty  is  certified  by  chartered  scientific  bodies, 
have  needed  to  be  called  on  as  a  substitute  for  the  State 
departments.  Both  these  chartered  bodies  and  the  State 


REGULATION.  53 

departments  have  in  practice  to  the  present  time  made 
use  of  altogether  too  inflexible,  arbitrary  and  artificial 
systems  of  ascertaining  the  fact  of  solvency.  Solvency 
is  a  matter  of  fact,  not  of  theory,  in  determining  which 
all  the  favorable  and  unfavorable  facts  of  a  company's 
experience  should  be  taken  into  account,  as  well  as  the 
nature  of  its  insurance  agreements.  The  systems  now 
in  vogue  are  wanting  in  just  these  qualities  and  it  is  to  be 
hoped  that,  as  regulative  statutes  become  more  uniform, 
this  evil  may  be  remedied.  Suggestions  for  such  remedies 
will  appear  in  the  consideration  of  distinct  sorts  of  insur- 
ance regulation  in  this  series. 

The  regulation  of  the  form  of  policy  contract  is  found 
in  the  United  States  in  every  gradation  from  general 
regulations  to  the  dictation  of  every  word  of  the  contract, 
which  appears  to  be  an  impairment  of  the  right  of  free 
contract.  Such  arbitrary  dictation  was  at  first  resented  by 
insurance  companies ;  but,  in  the  interest  of  uniformity, 
the  fire  insurance  companies  have  latterly  welcomed  it  as 
the  minor  of  two  evils  and  have  co-operated  in  drawing 
up  standard  policies  which  are,  on  the  whole,  more 
satisfactory  than  the  policies  formerly  in  use.  Whether 
a  general  application  of  such  particular  regulation  would 
be  well,  however,  may  be  doubted,  since  it  would  act  as 
an  absolute  prohibition  of  experimentation  by  the  people, 
such  as  has  developed  the  insurance  business  of  to-day. 
I  am  of  the  opinion  that  dictation  of  the  specific  condi- 
tions in  insurance  contracts,  other  than  such  as  are 
necessary  to  avoid  altering  the  nature  of  the  contract 
and  such  as  are  requisite  to  the  clear  understanding  of 
the  terms  of  the  contract,  are  unwarrantable  interferences 
with  the  liberty  of  the  people.  This  will  be  more 
particularly  explained  as  the  regulation  of  different  forms 
of  insurance  is  separately  taken  up. 

Regulations  of  insurable  interest  and  of  the  mode  of 


54  REGULATION. 

adjusting  claims,  so  that  the  nature  of  the  transaction 
shall  not  change  from  indemnity  to  gambling,  are  also 
proper  and  defensible ;  as  also  are  such  reasonable  regula- 
tions of  the  methods  of  conducting  the  business  as  shall 
prevent  injury  to  the  general  interest.  This  sort  of 
regulation  is  demanded  by  considerations  of  public  policy 
and  its  legitimacy  is  also  defended  by  the  fact  that  the 
insurance  companies  are  artificial  persons,  existing  by 
permission  of  the  State  for  the  benefit  of  the  people. 
Therefore,  their  conduct  must  not  be  such  as  to  make 
them  a  damage  to  the  public  interest. 

The  gathering  of  statistics  has  now,  for  a  long  time, 
both  in  this  and  all  civilized  nations,  been  regarded  a 
public  function  and  of  the  utmost  value  in  forwarding 
civilization  and  its  institutions.  The  statistics  of  the 
past  are  footprints  by  which  the  future  must  be  guided. 
It  has  come  to  be  recognized  that  even  a  large  part  of 
the  sanctHy  of  the  private  life  of  an  individual  must  give 
way  before  the  rights  of  the  public  as  expressed  in  the 
census  taker.  No  class  of  statistics  is  more  valuable  than 
that  of  insurance.  Those  who  have  studied  the  function 
of  insurance  in  modern  life  are  pretty  generally  con- 
vinced that  it  is  one  of  the  most  significant  and  potent 
factors  in  our  industrial  civilization  and  destined  to  play 
a  greater  part  in  the  next  century  than  in  this.  It  is, 
then,  of  the  utmost  importance  that  full  and  reliable 
statistics  be  drawn  from  the  insurance  experience  of  the 
present  and  be  preserved  in  such  form  as  to  codify  into 
a  reliable  guide  for  future  operations.  This  is  being 
carried  on  in  an  utterly  insufficient  way  and  even  the 
opportunities  which  are  offered  certain  leading  depart- 
ments are  not  being  fully  availed  of.  It  may  be  said, 
also,  that  each  fresh  demand  for  statistical  information  is 
met  with  a  narrow,  selfish  and  oftentimes  merely  blind 
opposition  on  the  part  of  companies. 


REGULATIVE  STATUTES. 


LIFE  INSURANCE.— I, 


In  the  United  States,  life  insurance  corporations  have 
assumed  several  forms,  which  are  commonly  grouped 
under  two  general  classifications,  regular  and  assessment. 
Those  which  are  called  regular  use  fixed  premiums, 
without  the  power  to  increase  except  on  renewable  term 
insurance  in  which  case  the  premiums  are  fixed  and 
increasing— that  is,  they  increase  according  to  a  fixed 
scale.  Those  which  are  classed  as  assessment  reserve  the 
power  to  increase  their  premium  rates  as  contingencies 
may  demand. 

Kegular  companies  may  be  subdivided  into  stock, 
mutual  and  mixed.  A  company  with  a  stock  capital, 
issuing  non-participating  policies  only,  is  called  a  stock 
company;  a  company  without  stock  capital,  whether 
issuing  only  participating  policies  or  issuing  both  partici- 
pating and  non-participating  policies,  is  called  a  mutual 
company ;  and  a  company  with  a  stock  capital,  which 
issues  participating  policies,  whether  it  also  issues  non- 
participating  policies  or  not,  is  called  a  mixed  company. 

Even  greater  variety  is  found  among  assessment  socie- 
ties, though,  with  but  one  exception,  they  are  mutual. 
Perhaps,  the  most  scientific  and  accurate  way  of  classify- 
ing them  is  according  to  their  mode  of  apportioning 

55 


56  REGULATIVE  STATUTES. 

among  the  contributors  the  insurance  cost.  Some  associ- 
ations assess  all  equally  without  regard  to  age ;  others 
assess  according  to  fixed  ratios,  graduated  by  the  ages 
at  entry  ;  and  still  others  apportion  the  insurance  cost  by 
an  advancing  scale  of  rates  according  to  the  attained  age. 
But  this  classification  will  find  some  associations  making 
use  of  all  these  different  systems,  having  started  with 
the  first  plan  and  gradually  evolved  to  the  last.  The 
societies,  themselves,  make  two  classes,  known  as  "  busi- 
ness "  associations  and  fraternities.  The  former  are  those 
which  are  conducted  on  the  proxy  system  and  the  latter 
are  managed  on  the  lodge  or  representative  system. 
Though,  on  the  whole,  the  fraternities  may  not  have 
adopted  the  last  mentioned  method  of  apportioning  losses 
to  the  same  extent  as  the  "business"  associations,  yet 
societies  may  be  found  in  each  class  which  would  com- 
prehend all  three  methods  of  apportioning  losses. 

Up  to  this  time  the  practice  has  been  to  govern  the  regu- 
lar and  assessment  companies  by  utterly  different  statutes. 
The  repudiation  of  the  "business"  associations  by  the 
fraternities  has,  of  recent  years,  led  to  a  third  division  of 
the  laws  in  many  States.  The  original  bone  of  contention 
was  concerning  the  matter  of  reserve.  The  regular  com- 
panies which  sell  insurance  at  fixed,  level  premiums,  all 
recognize  the  law  of  increasing  cost  in  apportioning  their 
losses.  Consequently,  the  premium  which  they  collect 
is  higher  than  the  policy's  share  of  the  losses  would  in 
the  earlier  years  require  and  lower  in  the  later  years. 
The  premium  has  been  averaged  or  equalized.  To  keep 
it  level,  it  is  evidently  necessary  to  accumulate  the  excess 
of  the  premium  over  the  cost  during  the  earlier  years,  so 
as  to  overcome  the  excess  of  the  cost  over  the  premium 
in  the  later  years.  This  is  reserve.  As  the  fixed  pre- 
miums of  the  regular  companies  are  based  on  fixed 
mortality  and  fixed  interest  expectation,  when  the  rates 


LIFE  INSURANCE.  57 

are  properly  computed,  the  excess  and  its  accumulations 
should  be  just  sufficient  to  make  good  the  later  deficiency. 
Under  the  present  reserve  Jaws  in  every  State  except 
New  York,  the  arbitrary  test  is  made  by  a  standard  table 
and  a  certain  rate  of  interest,  without  regard  to  whether 
the  company's  rates  were  constructed  according  to  that 
table  or  not  or  to  whether  the  company's  experience  has 
been  more  or  less  favorable  than  the  standard  by  which 
it  is  tested. 

The  conditions  being  determined,  actuaries  use  to  say 
that  the  reserve  may  be  computed  either  by  the  prospec- 
tive method  or  by  the  retrospective.  This  sounds  very 
formidable  but  is,  in  fact,  very  simple.  It  merely  means 
than,  under  fixed  conditions,  you  may  determine  the 
reserve  by  what  is  needed  to  make  good  future  deficien- 
cies or  by  what  has  been  contributed  in  excess  of  past 
requirements.  But  solvency  is  a  matter  of  fact  and 
should  be  so  treated.  The  true  way  to  determine  it  in  a 
company  which  uses  fixed  rates  is  to  estimate  the  future 
losses  year  by  year  by  a  table  which  probably  represents 
the  company's  future  experience  ;  discount  the  same  to 
their  present  value  at  a  rate  of  discount  corresponding  to 
the  rate  which  it  will  probably  realize ;  and  add  tht 
present  matured  liabilities  to  make  the  total.  Then  in  a 
similar  manner  and  by  the  same  rates  of  mortality  and 
interest,  discount  the  future  premiums  to  be  received, 
first  deducting  from  the  same  the  average  portion 
required  for  expenses,  and  to  this  add  the  actual  present 
resources,  to  make  the  total.  The  difference  between 
the  discounted  future  losses  and  the  discounted  future 
premiums  represents  the  amount  of  accumulation  the 
company  should  have  in  reserve.  This  reserve  will  agree 
with  the  reserve  actually  accumulated  or  found  by  the 
retrospective  method  only  when  the  facts  and  conditions 
as  well  as  the  net  premiums  all  agree  with  the  standards 


58       '  REGULATIVE  STATUTES. 

used  to  ascertain  future  liabilities  and  resources.  In 
other  words,  the  artificial  retrospective  method,  which  is 
practically  universal  in  this  country,  always  exaggerates 
the  liabilities  of  companies  whose  experience  is  likely  to 
be  better  than  the  standards  employed  and  always 
understates  the  liabilities  of  companies  whose  experience 
is  likely  to  be  not  so  good.  And,  by  not  taking  into 
account  the  differences  in  premiums,  it  likewise  errs  on 
the  same  side.  In  other  words,  though,  because  the 
standards  are  high,  a  strong  presumption  of  solvency  is 
raised  by  the  application  of  this  method  of  valuation, 
there  is  no  certainty  that  a  company  is  solvent  because 
found  so  by  the  tests  commonly  employed.  We  already 
have  the  anomaly  that  precisely  the  same  tests  are 
applied  to  a  company  writing  only  diseased  or  previously 
rejected  risks. 

M  The  proper  method  of  determining  the  fact  of  solvency 
would  be  to  make  use  of  the  company's  own  experience 
to  form  a  standard,  if  the  experience  be  sufficiently 
extended,  or,  if  not,  of  some  table  likely  to  correspond 
most  closely ;  and  to  use  a  rate  of  discount  reasonably 
indicated  by  the  company's  method  of  investment  but 
not  exceeding,  perhaps,  certain  limits,  so  as  to  avoid  the 
possibility  of  assuming  the  continuance  of  altogether 
exceptional  experience.  Such  a  plan  would  be  more 
intelligible  and  conclusive  to  the  minds  of  the  public 
than  the  plan  now  in  use.  It  would  occasion  a  little 
more  labor  for  actuaries  and  some  of  that  labor  would  be 
beyond  mere  tabulation  of  results  from  already  prepared 
figures.  But  that  would  not  be  a  distressing  evil,  espe- 
cially as  it  would  tend  to  foster  originality. 

It  is  possible  to  estimate  with  equal  precision  the  future 
losses  of  an  assessment  society  and  to  discount  the  same. 
But,  since  the  premiums  may,  according  to  the  contract, 
be  increased  to  cover  any  future  deficiency,  it  must 


LIFE  INSURANCE.  59 

always  be  assumed  that  the  possible  increase  covers  any 
apparent  deficiency,  unless  facts  prove  a  different  situa- 
tion. But  ex  post  facto  assessments  are  bad,  irremediably 
bad.  The  very  first  requirement  from  these  societies 
should,  for  their  own  safety  as  well  as  the  security  of 
their  patrons,  be  that  they  should  hold  in  hand  available 
assets,  equal  to  all  accrued  claims  and  to  all  claims  likely 
to  accrue  before  the  next  assessment  is  paid.  Beyond 
that,  reasonable  regulation  would  hold  an  association 
strictly  accountable  for  any  reserve  which  it  agreed  to 
make.  This  is  now-a-days  often  disregarded,  openly  and 
shamelessly  so  by  the  New  York  department  in  recent 
examinations. 

Associations  which  apportion  their  losses  according  to 
certain  increasing  ratios  but  which  attempt  to  equalize 
the  cost  without  guaranteeing  the  premium,  can  only  do 
so  on  the  basis  that  the  excess  of  premiums  in  the  earlier 
years  over  the  cost  will,  with  its  accumulations,  offset 
the  excess  of  cost  over  premiums  in  the  later  years.  This 
is  precisely  the  same  course  of  reasoning  which  justified 
the  regular  company  reserve,  except  that  the  resources 
to  make  up  future  deficiencies  are  not  limited  to  the 
stipulated  premium.  At  the  same  time,  societies  which 
issue  such  contracts  should  unquestionably  be  held  to 
accumulate  the  reserve  which  their  own  calculations  call 
for,  both  because  to  expend  the  same  is  a  breach  of  trust 
and,  also,  because  the  time  to  increase  the  premium  has 
arrived  when  it  is  found  that  this  reserve  cannot  be  kept 
good. 

Practically  the  only  reason  for  creating  two  or  three 
separate  bodies  of  statute  law,  with  the  possibilities  of 
special  privileges  which  that  implies,  is  the  necessity  for 
discrimination  in  this  matter  of  reserve.  It  will  be 
found  that  the  following  simple  rules  will  cover  this 
objection : 


60  REGULATIVE  STATUTES. 

For  resources,  add  to  assets  in  hand,  the  present  value 
of  future  fixed  premium,  to  be  determined  as  follows  : 
First,  deduct  from  each  premium  the  average  expense 
cost  to  be  taxed  against  it ;  then  determine  what  table  of 
mortality  most  closely  conforms  with  the  probable  future 
experience  of  the  company  and  also  what  rate  of  interest 
may  be  expected  to  be  realized ;  discount  the  net  pre- 
miums thus  arrived  at  by  the  interest  and  decrement 
rates  arrived  at,  which  gives  the  present  value  of  future 
premiums;  add,  also,  the  present  value,  by  a  similar 
process,  of  future  stipulated  premiums,  not  fixed,  noting 
whether  the  necessity  for  increasing  the  premiums  exists. 

For  the  liabilities,  add  to  liabilities  already  accrued, 
first,  those  likely  to  accrue  before  the  next  premiums  are 
collected ;  then,  the  present  value,  by  the  standards 
determined  on,  of  all  future  losses  under  fixed  and  stipu- 
lated premium  policies. 
i) 


REGULATIVE  STATUTES, 


LIFE  INSURANCE.— II. 


Perhaps  next  in  importance  after  proper  regulations  as 
to  testing  the  solvency  of  life  insurance  companies  is  the 
subject  of  proper  regulations  for  the  government  and 
management  of  companies.  At  present,  there  is  the 
greatest  variety  about  the  modes  of  governing  companies. 
It  might  naturally  be  expected  that  a  stock  company 
would  be  managed  by  one  system,  a  mixed  company  by 
another  and  a  mutual  company,  whether  regular  or 
assessment,  by  another ;  but  there  are  differences  in 
modes  of  control  which  are  not  accounted  for  by  these 
differences  in  structure. 

The  general  principle  upon  which  the  systems  for 
'  governing  corporations  is  based,  is  the  adequate  repre- 
sentation of  each  of  the  joint  owners.  In  a  stock  com- 
pany these  owners  are  the  shareholders  and  to  them  is 
given  the  entire  control  of  the  corporation,  subject  to  the 
regulation  of  the  laws  and  of  public  officers  having 
supervision  over  them.  The  method  by  which  the  will 
of  the  shareholders  is  ascertained  is  by  their  votes  for 
directors  to  whom  are  delegated  the  powers  of  manage- 
ment. From  days  when  the  ready  modes  of  communi- 
cation by  mail  and  otherwise  which  now  exist,  had  not 
been  invented,  joint-stock  corporations  have  inherited 

6x 


6a  REGULATIVE  STATUTES. 

the  system  of  representation  by  proxy  at  these  meetings. 
In  comparatively  small  companies,  with  but  few  share- 
holders and  them  for  the  most  part  known  to  each  other, 
this  way  of  learning  the  shareholders'  will  is,  perhaps, 
as  good  as  could  be  devised,  outside  of  a  plan  which 
would  discover  the  will  of  each  shareholder  directly. 
But  in  companies  with  large  capital  and  many  share- 
holders, some  of  whom  have  bought  for  investment  as 
they  would  buy  bonds  and  mortgages,  this  voting  by 
proxy  becomes  a  farce  and,  also,  in  many  cases  a  con- 
venient tool  by  which  a  minority  management  may 
perpetuate  itself. 

Especially  in  banks,  trust  companies  and  other  institu- 
tions which  collect  together  vast  sums  of  other  people's 
money,  is  there  reason  to  guard  the  management  from 
becoming  one  of  a  cabal  which  may  long  ago  have  parted 
with  their  interests  but  which  hold  on  by  the  power  of 
unlimited  proxies  for  the  purpose  of  hiding  past  rascal- 
ities or  perpetrating  new  ones.  Minority  representation, 
which  in  all  stock  companies  would  appear  to  be  prudent 
and  unobjectionable,  in  those  companies  whose  opera- 
tions are  of  a  fiduciary  character  is  especially  and 
urgently  desirable.  All  life  insurance  companies,  doing 
business  on  the  level  premium  or  the  quasi-level  pre- 
mium plan,  are  so  far  fiduciary  institutions  that  they  are 
collecting  large  sums  of  money  to  be  held  in  trust  to  pay 
future  cost  of  insurance.  In  the  nature  of  things,  it  is  to 
be  expected  that  active  companies  will  in  the  long  ruo 
accumulate  funds  of  this  character  far  exceeding  the 
capital  embarked  by  the  shareholders.  Such  a  thing  has 
been  known  in  the  history  of  American  life  insurance  as 
the  representative  of  the  majority  interest  deciding  that 
there  was  more  money  in  wrecking  the  company  than  in 
running  it,  on  which  decision  he  acted.  Not  without 
disastrous  results  to  the  holders  of  the  minority  of  the 


LIFE  INSURANCE.  63 

stock  and  to  the  holders  of  the  company's  policies,  you 
may  be  sure.  Minority  representation  in  purely  stock 
companies  would  greatly  increase  the  probability  of 
faithful  management  in  the  interest  of  both  shareholders 
and  policyholders. 

Several  of  the  mixed  companies  and  even  of  those 
which  do  a  mutual  or  participating  business  exclusively 
are  governed  entirely  by  the  stock  interest.  In  many  of 
the  companies,  however,  the  control  is  supposed  to  be 
divided  between  the  shareholders  and  the  policyholders, 
so  that  each  of  the  interests  has  an  equal  voice  in  the 
management.  In  some  States  this  is  the  law.  One  com- 
pany, at  least,  the  Equitable  of  Iowa,  goes  further  than 
this  and  gives  the  holder  of  $1,000  insurance  the  same 
voting  power  at  its  elections  as  the  holder  of  one  share  of 
stock.  In  the  government  of  most  mixed  companies, 
however,  the  proxy  system  is  in  use,  not  merely  for 
voting  stock  interests  but  also  for  policyholders'  interests. 
The  effect  of  this  is  generally  precisely  the  same  as  if  no 
voting  power  was  granted  the  insured,  namely,  that  the 
stock  absolutely  controls  the  elections.  The  exception 
would  be  when  some  officer,  who  was  placed  in  authority 
by  the  stock,  obtained  through  his  official  influence 
proxies  enough  from  the  policyholders  to  make  himself 
independent  of  the  stockholders.  Such  a  condition  could 
hardly  be  considered  an  improvement. 
is  The  application  of  the  proxy  system  to  policyholders' 
voting  is  not  merely  an  anachronism  ;  it  is  also  an  atro- 
cious misapplication.  While  it  might  not  unreasonably 
be  expected  that  in  a  business  enterprise  in  which  a  score 
or  even  a  hundred  men  were  interested  as  shareholders, 
these  men  could  most  expeditiously  and  readily  transact 
their  business  by  empowering,  each  as  he  saw  fit,  some 
other  to  act  for  him  when  not  at  the  meeting,  there  is  no 
reasonable  ground  for  expecting  any  such  satisfactory 


64  REGULATIVE  STATUTES. 

results  from  attempting  to  govern  a  company  which  is 
not  a  business  enterprise,  so  far  as  the  policyholders  are 
concerned,  by  offering  to  them  the  doubtful  advantages 
of  the  proxy  voting  privilege.  Their  numbers  and  their 
want  of  acquaintance  with  each  other,  aggravated  also 
by  the  unwillingness  of  managers  to  afford  them  facil- 
ities for  communicating  with  one  another,  make  it 
impossible  for  them  to  express  their  will  intelligently  and 
so  as  to  be  obeyed. 

This  is  true,  at  the  best ;  and  when  the  management,  as 
is  commonly  the  case,  purposely  manipulates  the  system 
so  as  to  perpetuate  itself  in  power,  the  voice  of  the  mem- 
bers is  most  effectually  stifled.  No  task  is  much  more 
hopeless,  ordinarily,  than  to  take  up  the  cudgels  against  a 
manager  thus  entrenched,  however  distrusted  he  may  be 
by  the  policyholders.  It  has  been  successfully  attempted, 
though,  at  least  three  times  in  the  history  of  American 
companies  ;  twice,  by  the  combined  action  of  the  agents 
and  once  by  influential  trustees.  But,  as  a  rule,  members 
would  prefer  to  drop  out  rather  than  to  spend  their  time 
and  money  in  striving  against  such  odds.  Even  when 
the  glaring  faults  of  the  Beers'  management  of  the  New 
York  Life  were  published  the  country  through,  it  is 
doubtful  whether  the  rallying  committee  of  the  opposi- 
tion secured  proxies  enough  to  have  made  a  decent  fight, 
had  the  matter  come  to  an  issue. 

Nearly  all  the  regular  mutual  companies  are  proxy- 
governed  ;  the  others  permit  direct  voting  only,  which 
confines  the  control  to  those  who  attend  the  meeting. 
As  their  membership  is  scattered  over  the  entire  nation, 
and  as  their  management  is  strongly  entrenched  at 
home,  this  amounts  to  much  the  same.  One  or  more  of 
the  companies  limit  the  number  of  proxies  which  can  be 
voted  by  one  man  to  a  very  moderate  number,  thus 
avoiding  the  evil  of  absolutism  ;  but,  so  far  as  ascertain- 


LIFE  INSURANCE.  65 

ing  the  will  of  its  members  is  concerned,  they  might  as 
well  have  no  such  limit.  Merely  to  check  absolutism  is, 
by  no  means,  to  make  the  rightful  owners  the  actual 
power  in  the  company.  It  may  be  said  without  exag- 
geration that  in  none  of  these  companies  is  there  ever  any 
actual  effort  to  learn  the  will  of  the  members,  either  as 
to  who  shall  rule  their  companies  or  in  what  manner 
they  shall  be  ruled. 

The  same  thing  is  true  of  all  the  so-called  *'  business  " 
associations,  the  managers  of  which  seek  to  be  auto- 
crats also.  But  in  most  of  the  fraternities,  a  different 
order  of  things  is  encountered.  These  insurance  corpo- 
rations have  sprung  from  the  people  directly  and  have 
inherited  from  the  great  orders  which  preceded  them  a 
representative  mode  of  control  which  may  be  studied  by 
other  mutual  companies  to  advantage.  The  representa- 
tion is  generally  of  lodges,  without  regard  to  number  of 
members,  but  sometimes  proportional  as  well  as  local  in 
character.  But,  whether  the  representation  be  such  as 
will  most  effectually  ascertain  the  will  of  the  members  or 
not,  it  is  at  least  an  attempt  to  learn  their  will  and  its 
result  is  that  the  members  take  tremendously  more  inter- 
est than  do  the  members  of  any  other  companies.  An- 
other result  is  that  they  are  economically  managed  and 
that  the  people  prefer  them  to  such  a  degree  that  they 
can  obtain  members  by  the  score  with  but  trifling  outlay. 

In  these  days,  when  the  vote  of  members  separated  by 
the  entire  continent  might  be  received  by  mail  and 
counted  in  a  fortnight,  there  is  no  reason  why  the  will  of 
the  members  should  not  be  ascertained  by  direct  voting 
on  all  important  questions  and  especially  on  the  question 
of  what  officers  they  will  have  to  manage  their  compa- 
nies. This  is  entirely  feasible  and  would  be  economical. 
The  experience  of  the  great  Australian  Mutual  Provident 
Society  which  has  used  this  method  for  many  years,  is 


66  REGULATIVE  STATUTES. 

that  it  furnishes  a  stable  management,  directly  account- 
able to  the  members,  and  consequently  always  on  its 
good  behavior;  and  that  the  members  take  great  interest, 
inform  themselves,  prove  progressive  and  at  the  same 
time  conservative.  Unless  some  cogent  objection  can  be 
formulated,  it  follows  as  a  matter  of  course  that  the  man- 
agement of  all  mutual  companies  should  be  secured  to 
their  owners,  the  members,  in  such  manner  that  they 
will  really  control  their  affairs. 


REGULATIVE  STATUTES, 


LIFE  INSURANCE.— III. 


It  is  not  merely  incumbent  on  the  State  to  see  that 
the  real  owners  of  a  company  have  an  opportunity  to 
control  its  action  ;  it  is  also  a  State  function  to  require 
that  a  company  shall  deal  equitably  between  those  con- 
cerned as  shareholders  or  policyholders  on  a  participat- 
ing plan.  And  this  is  not  in  any  proper  sense  paternal- 
ism. For  the  corporations  are  the  creatures  of  the  State, 
which  permits  for  convenience's  sake  limited-partner- 
ships to  take  that  form.  In  a  partnership,  whether  lim- 
ited or  otherwise,  each  partner  has  at  all  times  a  right  to 
an  accounting  and  to  what  is  equitably  due  to  him.  This 
right  he  can  enforce  in  the  courts  by  a  civil  action  at  law 
or  equity.  The  State,  in  creating  a  corporation  instead  of 
a  limited-partnership,  has  not  altered  the  nature  of  the 
relations  between  the  parties,  though  it  has  put  jt  into 
the  power  of  the  majority  or  those  who  by  proxy  repre- 
sent the  majority  to  completely  control  the  company  to 
the  exclusion  of  others,  a  condition  of  affairs  not  possible 
under  a  partnership.  One  consequence  of  this  condition 
is  that  it  is  a  thing  of  common  occurrence  in  companies 
of  all  sorts  for  the  majority  interest  to  ruthlessly  trample 
on  the  rights  of  the  minority,  even  going  to  the  length  of 
"  freezing  out "  all  minority  interests  by  tricks  known  to 

67 


68  REGULATIVE  STATUTES. 

the  "street."  Having  deprived  the  parties  in  interest 
from  one  recourse  against  injustice  by  making  majority 
rule  supreme,  it  is  plainly  the  duty  of  the  State  to 
prevent  the  misuse  of  this  power  over  the  property  of 
others.  This  can  only  be  accomplished  by  so  supervising 
their  apportionment  of  gains  and  losses  that  each  gets 
his  due. 

To  the  companies  and  actuaries  of  the  United  States  is 
clue  the  invention  and  very  general  adoption  of  the 
"contribution  plan"  of  dividing  profits  of  life  insurance 
companies  which  is  based  on  just  principles  and  should 
give  equitable  results.  The  system  consists  merely  of 
returning  to  the  policy  holder  salvage  or  profits  from  each 
part  of  his  premium,  according  to  his  actual  contribution 
to  the  aggregate  salvage  or  profit.  Thus,  in  paying  his 
premium  he  makes  a  certain  contribution  to  the  pay- 
ment of  death  losses  for  the  current  year.  The  sum  of 
all  such  contributions  comprise  the  total  expected  loss. 
If  the  actual  loss  is  less  than  this,  there  has  been  a  sal- 
vage, and  to  this  salvage  he  is  considered  to  have  con- 
tributed in  the  ratio  of  his  contribution  to  the  total  con- 
tribution. Similarly,  in  the  computations  of  most  com- 
panies, the  "loading"  on  his  premium  is  considered  to 
be,  practically,  a  contribution  to  current  expenses  and 
the  total  of  these  contributions  to  form  the  aggregate 
expected  expense.  Again,  if  the  actual  expense  be  less 
than  the  expected,  there  is  a  salvage,  and  to  this  salvage 
he  is  considered  to  have  contributed  in  the  ratio  of  his 
"loading "to  the  aggregate  "loading."  In  the  matter 
of  surplus  interest,  his  funds  are  considered  to  have 
earned  interest  at  the  same  rate  as  the  mean  assets  (in 
some  companies,  possibly,  as  the  mean  reserve)  of  the 
company.  Whatever  this  exceeds  the  amount  of  interest 
required  to  make  good  the  individual  reserve,  is  deemed 
surplus  interest,  contributed  by  him.  These  three  items 


LIFE  INSURANCE.  69 

compose  his  surplus,  to  which  may  be  added  propor- 
tionate apparent  gains  from  discontinued  policies. 
i-^Though  this  plan  has  been  adopted  with  practical 
unanimity  by  the  companies  of  the  United  States,  and 
though  it  is  manifestly  the  fair  and  just  manner  of 
apportioning  profits,  considerable  variations  from  it  will 
be  found  in  practice.  For  instance,  there  appears  to  be  a 
departure  from  the  principles  of  this  method  in  the 
apportionment  of  surplus  to  short  endowments  and  to 
limited-payment  life  policies  in  one  company,  especially 
after  the  latter  become  paid-up  policies.  There  is  a  dis- 
proportion between  the  surplus  allotted  these  policies  and 
an  ordinary  life  policy,  for  instance,  which  is  not  readily 
explicable.  The  phenomena  of  larger  dividends  on 
limited-payment  policies,  after  they  become  paid-up,  are 
possibly  subject  to  explanation  on  the  ground  that  the 
company  has  treated  the  "loading"  as  a  provision  for 
expenses  throughout  the  life  of  the  policy,  and  has  from 
the  premiums  created  a  special  reserve,  from  which  an 
annuity  to  cover  expenses  is  deducted  each  year,  the 
salvage  from  this  provision  being  a  considerable  amount. 
If  this  be  the  true  explanation— and  it  is  hardly  more 
than  a  guess — the  company  would  do  well  to  make  the 
system  known  to  all  interested  in  insurance.  Possibly, 
also,  some  reason,  consonant  with  the  principles  of  con- 
tribution, exists  for  the  disproportionate  dividends 
allotted  to  short  term  endowments. 

Another  apparent  departure  from  the  system  is  in  the 
dividends  apportioned  to  twenty  year  tontines  based  on 
endowment  premiums  by  the  great  tontine  companies. 
In  one  of  these  there  is  also  an  avowed  discrimination 
by  creating  a  separate  mortality  class  of  the  insured 
under  these  policies,  a  fact  which  becomes  important 
principally  because  practically  all  the  new  business  for 
many  years  has  been  transacted  on  this  plan.  Thus  the 


70  REGULATIVE  STATUTES. 

older  policy  holders  are  deprived  in  large  degree  of  the 
salvage  derived  from  the  accession  of  new  lives.  This 
same  discrimination,  by  no  means  avowed,  seems  to  be 
practiced  by  an  office  founded  by  one  of  the  joint- 
inventors  of  the  contribution  plan.  For  three  years  past, 
natural  premium  policies  issued  before  1887,  the  pre- 
miums on  whi<5h  are  supposed,  on  the  theory  of  the  man- 
agement, to  consist  of  pure  expense  and  mortality  cost 
(the  former  being  strictly  defined),  have  been  costing  a 
net  premium  higher  than  would  be  required  by  an 
experience  equal  to  the  full  expectation  by  the  American 
tables.  It  is  not  credible  that  the  mortality  of  the  com- 
pany exceeds  the  expected  deaths  by  this  table  ;  the  pub- 
lished returns  indicate  no  such  abnormal  experience. 
The  only  tenable  explanation  is  that  these  lives  are  being 
put  in  a  class  by  themselves. 

It  appears  reasonable  that  State  regulation  should  both 
repress  these  apparent  discriminations  and  require  such 
openness  with  the  interested  policyholders  that  no  dis- 
crimination could  be  practiced.  To  this  end,  it  might  be 
well  to  require  all  companies  to  insert  in  their  policy 
contracts  a  definition  of  surplus,  consonant  with  the  con- 
tribution system,  and  promising  definitely  to  pay  the 
same  or  whatever  percentage  of  the  same  the  individual 
company  purposes  to  pay.  Such  conformity  as  this,  which 
leaves  each  individual  company  free  to  make  such  a  con- 
tract with  its  policyholders  in  this  regard  as  may  suit  it 
and  them,  provided  it  be  clear  and  conformable  with  an 
equitable  distribution  of  profits  as  between  policyholder 
and  policyholder,  would  appear  to  be  unobjectionable  on 
any  defensible  grounds. 


REGULATIVE  STATUTES, 


LIFE  INSURANCE.— IV. 


Perhaps  one  of  the  most  important  things  to  regulate 
in  life  insurance  is  insurable  interest,  which  directs  what 
persons  shall  be  competent  to  effect  and  sustain  an  insur- 
ance on  the  life  of  another.  Because  insurance  was  not 
one  of  the  ancient  customs  of  the  English  people,  this 
question  is  not  treated  in  English  common  law  which  was 
but  a  compendium  of  those  customs.  And,  since  insur- 
ance A>as  introduced,  there  has  been  very  little  legislation 
on  the  subject.  Consequently,  the  law  which  exists  con- 
sists principally  of  decisions  of  courts  on  disputes  between 
rival  claimants  under  policies.  The  courts  have  proceeded 
on  diverse  grounds  in  making  these  decisions.  In  this 
country,  the  trend  has  been  toward  a  strict  construction 
of  insurable  interest,  shutting  out  insurance  in  favor  of 
persons  who  have  not  a  financial  interest  in  the  life 
of  the  insured.  This  follows  closely  the  fundamental  con- 
ception of  insurance,  as  indemnity  for  loss. 

The  theory  of  insurable  interest  as  thus  applied,  has  in 
this  way  appeared  to  grow  out  of  reasonable  construc- 
tions of  the  common  law  of  England.  Singularly 
enough,  English  courts  derive  from  that  law  no  such  con- 
structions. On  the  contrary,  in  Great  Britain  and  her 
most  important  dependencies,  the  courts  hold  that  a  man 

71 


72  REGULATIVE  STATUTES. 

may  legally  take  insurance  or  permit  insurance  to  be 
taken  in  favor  of  any  person  he  may  choose,  and  the 
courts  sustain  such  contracts  when  made.  Moreover,  the 
beneficiary  may  for  a  valuable  consideration  sell  his  inter- 
est in  the  policy,  thus  creating  a  new  beneficiary  even 
without  the  consent  of  the  insured.  As  a  consequence  of 
such  decisions,  life  insurance  policies  are  often  sold  at 
public  sale,  the  buyer  bidding  according  to  his  estimate  of 
the  probable  life  of  the  insured.  Such  scenes  are  not 
especially  edifying ;  but  it  often  happens  that  by  reason 
of  the  feeble  health  of  the  insured  much  more  than  the 
reserve  value  is  realized  on  these  policies.  And  the  sys- 
tem cannot  have  been  so  dangerous  and  subversive  of 
good  morals  as  it  seems,  or  the  carrying  of  insurance  on 
lives  in  which  the  speculator  is  not  interested,  would  have 
been  attended  with  more  and  graver  scandals  than  it 
really  has.  Richard  Teece,  actuary  and  manager  of  the 
Australian  Mutual  Provident  Association,  informs  me  that 
very  few  scandals  have  arisen  from  an  abuse  of  the  system. 

We  have  not  wholly  escaped  the  murders  which  might 
be  expected  to  follow  such  a  wide  open  policy,  though  our 
courts  have  been  very  strict  in  their  construction  of  insur- 
able  interest.  The  Holmes-Pitezel  murder  is  a  case  in 
point.  But  it  seems  reasonable,  notwithstanding,  that  all 
insurance  should  be  based  on  an  actual  interest  in  the 
thing  insured,  whether  it  be  property  or  life.  And  that 
proposition  may  safely  be  taken  as  a  basis  for  sound  legis- 
lation, especially  as  to  effecting  or  transferring  insurance 
without  the  consent  of  the  insured. 

This  exception,  relative  to  the  consent  of  the  insured, 
raises  at  once  the  question :  Who  is  to  be  the  judge  as  to 
the  insurable  interest  hi  a  man's  life?  Are  not  courts 
bound  to  recognize  as  valid  obligations  those  obligations 
which  a  man,  in  the  full  possession  of  his  senses,  himself 
recognizes  ?'  Is  not  the  taking  and  paying  for  insurance 


LIFE  INSURANCE.  73 

by  the  insured  in  favor  of  a  certain  beneficiary  the  best 
possible  evidence  that  in  the  judgment  of  the  insured  that 
beneficiary  has  an  insurable  interest  in  his  life,  based  on  a 
recognized  duty  or  purpose  to  aid  in  the  support  of  the 
beneficiary?  This  is  already  conceded  by  the  courts  in 
cases  where  the  insured  has  retained  control  over  the  pro- 
ceeds of  the  policy  and  disposed  of  them  by  will.  But  that 
concession  is  made  because  of  the  fiction  that  he  has  an 
insurable  interest  in  his  own  life  which  is  the  most  pre- 
posterous nonsense,  not  to  be  endured  anywhere  but  in 
legal  sophistry  and  in  order  to  bolster  up  a  good  cause.  It 
were  much  more  to  the  purpose  if  the  right  of  the  insured 
to  designate  the  beneficiary,  who  should  be  considered  to 
possess  prima  fade  insurable  interest,  were  frankly  con- 
ceded. 

If  this  were  established  by  statutory  regulation,  as  it  is 
now  in  some  States,  in  the  case  of  fraternal  associations,  all 
that  would  remain  necessary  to  do  would  be  to  enact 
reasonable  regulations  for  cases  of  transfer  of  the  interest 
of  one  beneficiary  to  another,  of  insurances  when  the 
beneficiary  is  to  pay  the  premiums  and  of  insurances, 
especially,  which  are  effected  without  the  knowledge  or 
consent  of  the  insured.  Effecting  insurance  without  the 
consent  of  the  insured,  such  as  on  little  children  or  the 
aged,  should  only  be  permitted  in  favor  of  near  relatives 
who  have  a  very  evident  interest  in  them. 

In  general,  it  may  be  said  that  no  transfer  of  the  interest 
of  a  beneficiary  should  be  permitted  without  the  consent 
of  the  insured.  There  is  no  other  way  in  which  specu- 
lation in  the  proceeds  of  policies  can  be  effectively 
prevented.  An  exception  to  this,  however,  may  be  made 
when  the  policy  is  merely  assigned  as  security  for  a  loan 
and  interest  thereon,  any  remainder  after  repaying  the 
sum  advanced  and  interest  belonging  to  the  original 
beneficiary.  Such  a  transfer  would  not  involve  any 


74  REGULATIVE  STATUTES. 

speculative  element  and  would  be  unobjectionable.  It  is 
the  opinion  of  a  very  high  authority  on  assignments  of 
life  policies  that  any  other  assignment  might  not  hold 
against  representatives  of  the  beneficiary  suing  for  the 
excess.  .But  this  doubt  should  be  made  a  certainty. 
When  the  insured  consents  to  the  assignment,  he  of  course 
practically  recognizes  the  iiisurable  interest  of  the  new 
beneficiary  and  that  recognition  should  be  considered  to 
establish  insurable  interest. 

In  cases  in  which  it  may  appear  that  the  beneficiary  and 
not  the  insured  intended  and  expected  to  pay  the  pre- 
miums on  the  insurance,  there  is  occasion  for  increased  cir- 
cumspection. The  right  of  a  man  to  recognize  his  duty  to 
protect  a  beneficiary  by  carrying  insurance  in  his  favor, 
does  not  imply  his  right  to  permit  whom  he  will  to  specu- 
late on  his  chances  of  living.  The  law  should  recognize  a 
distinction  between  the  two  cases  and  should  apply  much 
severer  tests  to  the  insurable  interests  of  persons  who  are 
so  far  self-sustaining  that  they  can  afford  to  take  and  pay 
for  insurance  on  the  life  of  another  in  the  hope  of  reaping 
a  profit  from  the  transaction. 

•    To  recapitulate,  an  insurable  interest  in  a  man's  life 
should  be  recognized  as  vesting  in  : 

Immediate  relatives  who  are  or  may  become  dependent 
upon  the  insured ; 

Creditors  to  the  !amount  of  the  insured 's  obligations  to 
them,  with  interest,  costs  and  premiums  paid  by  them  ; 

Creditors  of  a  designated  beneficiary,  to  which  the 
policy  has  been  assigned,  to  the  amount  of  the  obligation 
due  them,  with  interest,  costs  and  premiums  paid  by 
them  ; 

Other  persons,  whether  related  or  not,  whose  insurable 
interest  the  insured  has  recognized  by  taking  insurance  in 
their  favor,  while  in  sound  mind,  the  premiums  to  be  paid 


LIFE  INSURANCE.  75 

by   himself,  or   has  similarly  recognized  by   consenting 
that  insurance  already  existing  be  assigned  to  them. 

Perhaps  the  most  shameful  incident  connected  with 
existing  laws,  as  interpreted  by  the  courts,  is  the  fact  that 
insurance  is  not  sustained  in  favor  of  the  mother  of 
children,  gotten  out  of  wedlock,  nor  in  some  States  in 
favor  of  the  children,  themselves ;  as  if  a  great  enough 
wrong  had  not  already  been  done  these  persons. 


REGULATIVE  STATUTES, 


LIFE  INSURANGE.-Y, 


The  regulation  of  the  form  of  life  insurance  policy  con- 
tracts has  never  been  carried  to  the  extreme  point  which 
has  been  reached  in  fire  insurance,  in  which,  as  wre  shall 
see  hereafter,  standard  policies,  complete  in  every  detail, 
are  forced  upon  the  companies,  producing  absolute  uni- 
formity. There  are  some  special  reasons  why  such  a 
course  may  not  be  so  objectionable  in  fire  insurance  as  in 
life  insurance,  which  reasons  will  be  dealt  with  in  due 
time.  But  it  would  be  entirely  proper  for  the  State  to 
prescribe  the  general  form  of  life  insurance  policies,  indi- 
cating the  order  in  which  its  clauses  should  appear. 

An  insurance  policy  is  a  variation  of  a  simple  contract, 
and  of  the  nature  of  a  promissory  note.  Its  primary 
elements  are,  first,  a  consideration  and,  second,  a  promise. 
But  to  these,  by  the  very  character  of  the  transaction, 
there  are  added  in  life  insurance  policies  the  following 
important  features,  namely :  the  name,  relationship  or 
other  interest  of  the  beneficiary  ;  the  time,  place  and  mode 
of  payment  of  the  principal  sum  ;  the  contingency  upon 
which  the  principal  sum  becomes  payable,  made  explicit 
by  the  detailed  description  of  all  exceptions  and  Specifica- 
tions. Then,  if  the  policy  be  a  mutual  or  participating 
one,  a  clause  or  clauses  are  needed  to  specify  the  nature  and 

77 


78  REGULATIVE  STATUTES. 

amount  of  the  participation  and  the  time,  place  and  mode 
of  paying  the  same.  And,  if  the  policy  is  to  be  subject  to 
surrender,  the  conditions  of  surrender  should  be  stated. 

The  form  of  contract  to  be  prescribed  should  provide  for 
a  specific  mention  of  the  consideration  together  with  the 
time  or  times  and  place  or  places  at  which  the  same  must 
be  paid.  The  practice  of  incorporating  a  reference  to  the 
policyholder's  application  as  a  warranty  and  part  of  the 
consideration  should  be  prohibited.  The  only  effect  of 
inserting  such  a  condition  is  to  put  the  company  in  the 
position  of  being  able  to  perpetrate  a  fraud  on  the  bene- 
ficiary by  refusing  payment  because  of  trivial  errors ;  it 
would  always  be  able  to  defend  itself  against  a  claim  which 
it  could  prove  to  be  based  on  fraud,  even  though  the  state- 
ments were  accepted  as  mere  representations. 

The  promise  should  be  in  the  simplest  language ;  I  know 
of  none  clearer  or  more  succinct  than  the  "promise  to 
pay  "  of  a  simple  promissory  note.  And  in  immediate 
conjunction  with  this  promise,  in  good,  bold  type,  the 
company  should  be  required  to  state  under  just  what  cir- 
cumstances it  would  pay,  and  under  just  what  circum- 
stances it  would  not  pay.  Conditions  not  there  specified 
should  be  held  not  binding  as  against  the  insured  and 
beneficiary.  The  practice  of  hiding  the  most  important 
conditions  and  exceptions  of  a  policy  in  small  print,  far 
from  the  promise  which  they  qualify  and  often  in  some 
obscure  part  of  the  application,  cannot  be  too  severely 
guarded  against. 

The  principal  sum  should  be  payable  as  soon  as  notice  of 
loss  is  given  and  within  the  State,  instead  of  at  the  home 
office  of  the  company.  .Thus  the  penalty  for  delay  of  pay- 
ment falls  upon  the  company.  The  company  seeks 
applicants  for  insurance  at  their  places  of  business  ;  they 
do  not  seek  the  company  at  its  place  of  business.  Conse- 
quently the  whole  transaction  should  be  defined  to  be  of 


LIFE  INSURANCE.  79 

the  State  in  which  the  insured  made  application.  The 
policy  should  be  so  drawn  as  to  be  subject  wholly  to  the 
laws  of  that  State  ;  and  110  stipulation  should  be  permitted 
that  it  should  be  construed  by  the  laws  of  another  State, 
nor  that  a  different  limit  of  time  for  legal  action  should 
apply  to  a  claim  under  it  than  the  State  by  its  statutes  pro- 
vides. 

A  clear,  fair,  unequivocal  definition  of  what  constitutes 
surplus  should  be  incorporated  in  the  policy  form  but 
every  company  should  be  left  free  to  promise  to  pay  the 
whole  or  any  definite  or  even  undefined  part  of  the  policy- 
holder's  sfyare  of  the  surplus.  The  mode  or  modes  of 
applying  or  paying  this  surplus  should  also  be  required  to 
be  specifically  described  in  the  policy  itself  and  in  such 
manner  that  the  companies  are  not  left  free  to  practically 
diminish  the  same  by  discrimination  between  policy- 
holders. 

In  the  same  way,  although  it  will  be  found  that  the 
definition  of  surplus  involves  the  recognition  of  the  policy- 
holder's  title  to  the  amount  reserved  on  account  of  his 
policy,  it  is  well  to  permit  each  company  to  stipulate  for 
such  surrender  conditions  as  it  desires,  or  for  no  surrender 
value  at  all.  But  the  law  should  require  that  the  mini- 
mum surrender  value  at  the  close  of  each  policy  year,  in 
cash,  paid-up  and  extended  insurance,  be  endorsed  thereon. 

Such  a  form  should  read  somewhat  as  follows  : 

11  The  (name  of  company)  in  consideration  of  (amount 
or  amounts,  times  and  place  of  payment  of  premiums) 
promises  to  pay  to  (name,  residence,  relationship  or  inter- 
est of  the  beneficiary)  (principal  amount)  dollars,  upon 
the  death  of  (name  and  residence  of  the  insured)  at  (place 
of  payment— preferably,  any  of  its  offices)  subject  to  the 
following  conditions :  (conditions  qualifying  the  contract 
to  pay  the  principal  sum).  The  surplus  of  the  premiums 
paid  under  this  policy  shall  be  determined  as  follows : 


fo  REGULATIVE  STATUTES. 

From  the  premium  or  premiums  hereon  shall  be  deducted 
from  time  to  time  the  policy's  share  of  the  company's 
expenses  and  the  actual  cost  of  the  net  insurance  furnished 
and  interest  shall  be  added  to  the  remainder  at  the  net 
rate  currently  realized  on  the  company's  mean  assets ;  the 
excess  of  this  amount  over  the  reserve  required  by  the 
rules  of  the  company  shall  be  the  surplus,  (all  or  what 
part  of)  which  shall  be  returned  to  the  policyholder  (at 
what  tunes  and  in  what  manner. )  This  policy  may,  after 
(what  interval)  be  surrendered  to  the  company  which 
will  pay  therefor  a  surrender  value  (in  cash,  paid-up  or 
extended  insurance),  the  following  being  the  minimum 
surrender  value  which  will  be  allowed  at  the  end  of  each 
policy  year :  (table  of  minimum  surrender  values  in  cash, 
paid-up  or  extended  insurance.)" 


REGULATIVE  STATUTES, 


LIFE  INSURANCE.— VI. 


There  is,  perhaps,  a  more  pronounced  tendency  to  legis- 
late concerning  the  conditions  which  may  be  incorpor- 
ated into  a  life  insurance  policy  contract,  than  on  almost 
any  other  subject  connected  with  life  insurance.  This  is 
especially  true  of  surrender  conditions  or  the  conditions 
which  determine  what  values  in  cash  or  otherwise  may 
be  allowed  on  surrender.  The  laws  of  Massachusetts  are 
existing  evidences  of  this  tendency,  and  the  laws  of  New 
York  and  Missouri  present  other  phases  of  the  same 
thing.  The  original  Massachusetts  statute  provided  for 
extended  insurance  in  the  event  of  discontinuance  ;  this 
has  since  been  altered  to  give  an  alternative  of  paid-up 
insurance  or  cash.  The  law  of  Missouri  is  much  like  the 
original  law  of  Massachusetts,  and  the  laws  of  New  York 
provide  for  certain  definite  paid-up  values.  An  instance, 
however,  of  the  little  value  which  many  persons  for 
whose  benefit  these  laws  were  intended  attach  to  them, 
appears  in  the  fact  that  for  many  years  the  New  York 
companies  have  required  applicants  to  waive  their  legal 
rights  to  surrender  values  in  full  tontine  policies  even  to 
the  extent  of  agreeing  to  waive  the  right  to  any  surrrender 
value.  In  Missouri,  also,  all  applicants  in  these  compa- 
nies waived  their  rights  under  the  statutes  of  that  State 

81 


8a  REGULATIVE  STATUTES. 

which  illustrates  the  same  indifference,  though  the  courts 
have  held  that  such  a  waiver  is  not  valid.  In  Massachu- 
setts also,  companies  which  do  not  offer  the  benefits  guar- 
anteed by  home  companies  under  the  laws  of  that  State 
have  all  along  succeeded  in  selling  their  policies  to  a  very 
large  aggregate  amount.  All  of  which  things  seem  to 
indicate  pretty  plainly  that  the  benefits  conferred  by 
such  laws  are  not  altogether  appreciated. 

It  has,  I  consider,  been  clearly  demonstrated  that  there 
is  no  necessity  justifying  the  forfeiture  of  a  large  part  of 
the  unearned  premium  of  a  life  insurance  policy  because 
the  owner  chooses  to  discontinue  it.  The  theory  of 
possible  adverse  selection  because  of  conscious  choice  of 
persons  in  good  health  to  withdraw,  is  not  borne  out  by 
the  facts  which  on  the  contrary  show  that  companies 
that  allow  liberal  surrender  values  often  exhibit  very 
superior  mortality  experiences.  The  two  lowest  mortality 
experiences  on  record  are  those  of  unrestricted  surrender 
companies,  if  we  except  that  of  one  company  covering  a 
short  time  and  comparatively  few  lives.  It  is  also 
demonstrable  that  there  is  no  actual  gain  to  persisting 
members  from  the  forfeitures  of  those  who  discontinue, 
the  apparent  gain  being  more  than  offset  by  the  increased 
expense  of  getting  new  insurances  on  such  a  system.  But 
these  matters  I  have  given  sufficient  attention  elsewhere.* 
They  only  have  this  bearing  here,  namely  :  that  no  law 
compelling  the  allowance  of  full  surrender  values  involves 
danger,  loss  or  even  want  of  gain  to  any  of  the  members 
of  a  company. 

At  the  same  time,  there  is  also  no  apparent  reason  why 
companies  and  their  patrons  should  not  be  permitted  to 
make  such  contracts  in  this  particular,  as  in  all  others,  as 


^Especially  in  "  Effects  of  Free  Surrender  and  Loan  Privileges 
in  Life  Insurance." 


LIFE  INSURANCE.  83 

may  be  mutually  agreeable,  when  not  against  publfc 
policy.  There  is  no  known  principle  of  public  policy 
involved  in  the  question  of  the  surrender  values  to  be 
allowed  for  life  insurance  policies.  But  there  is  a  distinct 
principle  of  public  policy  involved  in  the  proposition  that 
the  conditions  of  such  a  contract  in  this  particular  should 
be  set  forth  clearly  and  distinctly  in  the  contract,  espe- 
cially as  there  has  from  the  beginning  been  a  deal  of 
misunderstanding  about  the  matter  among  policyholders. 
If  the  facts  are  clearly  and  unequivocally  set  forth  in 
concrete  form,  that  is,  in  figures  showing  the  minimum 
values  which  will  be  allowed,  there  would  be  no  misunder- 
standing and  the  more  liberal  and  less  liberal  policies 
would  thus  sell  on  their  merits  in  the  competitive  market. 
Concerning  the  conditions  qualifying  the  promise  to 
pay,  something  similar  may  be  said,  namely :  the  most 
important  thing,  decidedly,  is  to  insist  that  the  conditions 
be  plainly  and  unequivocally  set  forth  in  immediate 
connection  with  the  promise  to  pay  and  in  good  sized 
print.  When  this  is  done,  there  will  be  little  reason  to 
regulate  the  contents  of  the  conditions  themselves ;  for 
competition  will  also  operate  in  that  particular.  It  may 
be  said  in  this  connection  that  the  American  companies, 
as  a  whole,  have  perhaps  gone  quite  far  enough  in  remov- 
ing offensive  or  objectionable  conditions.  Possibly,  a  law 
providing  that  policies  should  not  be  rendered  void 
because  of  anything  not  due  to  the  act  or  negligence  of 
either  insured  or  beneficary  or  which  they  were  unable  to 
prevent,  would  not  be  unwise.  But,  when  compelled  to 
plainly  set  forth  the  conditions,  companies  will  be  pretty 
likely  to  get  close  to  that  desirable  point  without  further 
interference  on  the  part  of  the  law.  In  the  opinion  of 
many  competent  observers  they  have  already  gone  too 
far  in  making  policies  by  their  terms  indisputable  and  not 
even  subject  to  the  defence  of  fraud,  according  to  the 


84  REGULATIVE  STATUTES. 

contracts.  And  they  sometimes  themselves  confess  that 
they  have  gone  too  far  in  this  matter  ;  for  they  compro- 
mise claims  by  refusing  to  recognize  the  binding  force  of 
the  incontestable  provision  as  against  fraud. 

There  are  some  reasons  which  do  not  at  present  appear 
on  the  surface,  why  too  narrow  regulation  should  not  be 
practiced  in  the  matter  of  these  conditions.  One  import- 
ant reason  is  that  the  laws  should  be  comprehensive  and 
general  in  their  application.  Insurance  against  death  by 
accident,  for  instance,  would  by  a  statute  making  all  COIN 
ditions  illegal,  be  interdicted  completely  ;  and  merely  to 
state  that  fact  is  to  condemn  such  legislation.  Similarly, 
insurance  on  the  lives  of  pledged  abstainers,  during  their 
abstinence  only,  would  not  be  permissible.  In  view  of 
the  fact  that  in  the  experiments  which  are  yet  to  be  made 
before  we  have  material  for  classification  of  risks,  many 
sorts  o£-eonditions  at  present  not  employed  may  need  to 
be  used,  it  seems  the  part  of  wisdom  to  proceed  with  cau- 
tion in  making  laws  regulating  these  conditions,  and  to 
proceed  on  the  basis  of  permitting  the  widest  liberty  con- 
sistent with  fairness  between  the  parties  and  with  public 
policy. 


REGULATIVE  STATUTES, 


LIFE  INSURANGE.-VII. 


Level  premiums  in  life  insurance  are  constructed  on  the 
fallacious  basis  that  the  expense  of  the  first  year  will  not 
be  greater  than  that  of  succeeding  years.  That  is,  to  say, 
to  begin  with,  net  level  premiums  were  first  constructed 
on  the  assumption  of  certain  mortality  and  interest  experi- 
ence, and  in  these  net  premiums  there  was  no  provision 
for  expense.  To  these  was  added  a  percentage  ".  loading," 
intended  both  to  cover  expenses  and  all  possible  contin- 
gencies, such  as  abnormal  mortality  or  decrease  of  interest 
below  the  rate  used  as  a  factor  in  determining  the  net 
premium.  It  has  been  the  custom  of  American  com- 
panies, as  we  have  seen  elsewhere  in  these  papers,  to 
charge  against  their  policies  their  share  of  expenses  in 
proportion  to  these  expense  "  loadings." 

Already  by  several  leading  French  companies  the  sys- 
tem of  loading  for  expenses  according  to  the  nature  of  the 
expense  provided  for  has  been  adopted  ;  and,  before  learn- 
ing of  this,  the  writer  had  also  tried  the  same  experiment 
in  this  country  with  a  company  which  consulted  him. 
The  items  of  expense  naturally  cleave  into  four  divisions, 
namely  :  Cost  of  procuring  business  ;  cost  of  collection  ; 
cost  of  management ;  cost  of  handling  investments.  The 
first  of  these  is  naturally  a  lump  sum  to  be  paid  com- 

85 


86  REGULATIVE  STATUTES. 

monly  as  soon  as  the  insurance  is  effected,  and,  indeed, 
part  of  it  is  necessarily  incurred  before  the  insurance  is 
effected.  The  second  in  this  country  at  least  must  com- 
monly vary  with  the  premiums  actually  collected,  being 
a  percentage  thereon.  Since  the  main  office  of  an  insur- 
ance company  is  to  provide  insurance— and  investment 
expenses  are  covered  in  the  fourth  item— it  follows  almost 
necessarily  that  policies  should  contribute  to  expenses  of 
management  according  to  the  amount  of  insurance 
carried.  Indeed,  Walter  C.  Wright  believes  in  applying 
this  principle  to  practically  all  expenses,  and  also  in  divid- 
ing the  expense  according  to  current  actual,  instead  of 
nominal  insurance.  Investment  expenses  are,  as  a  whole, 
incurred  according  to  the  amount  of  money  handled  and 
are  in  any  case  chargeable  as  a  deduction  from  the 
revenue  from  investments. 

The  old  system  which  is  still  practically  in  universal 
use  in  America  made  no  distinction  as  to  the  classes  of 
expenses.  The  whole  expense  of  the  company  is  bunched 
and  apportioned  against  each  policy  according  to  the  load- 
ing on  its  premium,  which  loading  in  turn  is  a  mere 
percentage  addition  to  the  original  premium.  It  thus 
happens  that  policies  do  not  contribute  to  pay  expenses  in 
anything  like  the  same  ratios  that  they  contribute  to 
occasion  expenses.  The  ill  effects  of  the  system  are,  how- 
ever, most  marked  in  the  matter  of  policies  with  limited 
payments,  in  which  the  provision  for  expenses  intended 
to  cover  the  policies'  contribution  throughout  their  entire 
existence  is  dissipated  wholly  during  the  premium-paying 
period,  leaving  no  provision  for  contribution  to  mana- 
gerial or  investment  expenses  after  the  premium-paying 
period  has  ceased.  And  this  reaches  the  acme  of  the 
unscientific  and  ridiculous  when  a  policy  is  issued  on  the 
single  premium  plan  and  the  whole  provision  for  expenses 
dissipated  the  first  year. 


LIFE  INSURANCE.  87 

Laws,  regulating  life  insurance,  should  discriminate 
between  these  four  classes  of  expenses  and  should  cause 
companies  to  incorporate  in  their  premiums  and 
reserves  loadings  according  to  the  purpose  for  which 
the  loadings  are  added.  This  can  be  done  with- 
out fixing  an  arbitrary  loading  by  merely  requiring  that 
the  loadings  should  be  thus  separated  and  graduated. 
The  provision  for  investment  expenses  need  not  there 
appear,  and,  indeed,  should  not ;  for  expense  of  that 
nature  should  be  deducted  from  investment  returns. 
But  the  loading  for  first  cost  should  appear  in  the  first 
premium  ;  loading  for  collection  should  be  added  to  each 
net  premium  ;  and  loading  for  managerial  expenses  should 
also  be  added  to  each  premium,  but  not  in  the  ratio  of 
the  premiums  but  at  so  much  per  thousand  of  insurance. 
And  the  actual  apportionment  of  expenses  to  individual 
policies  should  then  be  according  to  the  provisions  thus 
separately  made. 

The  necessity  for  such  regulation  was  never  more 
apparent  than  at  present.  In  the  early  history  of  life 
insurance  in  this  country  the  commissions  for  procuring 
new  insurances  were  within  the  loadings  on  the  first  pre- 
miums ;  and  much  more  was  left  of  the  premium  than 
was  sufficient  to  pay  its  mortality  cost  and  to  make  good 
its  reserves.  Gradually  the  cost  of  procuring  insurances 
has  increased  until  at  this  time  it  practically  never  leaves 
enough  to  pay  the  mortality  cost  and  to  make  good  the 
reserve,  often  does  not  leave  enough  to  pay  the  mortality 
cost,  and  in  some  cases  and  companies  has  required  more 
than  the  whole  premium.  Such  a  condition,  calling  for 
contributions  from  other  policyholders  to  make  good 
these  deficits,  and  relying  upon  the  expectation  of  getting 
even  some  day  out  of  loadings  on  future  premiums  on  the 
new  policies,  is  complex,  fallacious,  misleading  and  dan- 
gerous. If  necessary  in  order  to  provide  for  the  cost  of  pro- 


88  REGULATIVE  STATUTES. 

curing  insurances  and  also  at  the  same  time  to  preserve  the 
feature  of  level  premiums,  no  reserve  should  be  counted 
against  these  policies  until  the  end  of  the  second  year. 
That  is  to  say,  the  rate-making  and  reserving  should  be 
based  on  the  actual  facts  instead  of  the  theory  that  the 
expense  cost  is  the  same  each  year.  And,  furthermore, 
where  the  premium-paying  period  is  to  cease  while  the 
insurance  continues,  an  additional  reserve  should  be  held, 
equivalent  to  the  estimated  future  expenses  of  manage- 
ment. 

In  accordance  with  these  provisions,  companies  should 
be  estopped  by  the  law  from  paying  a  commission  on  the 
first  year's  premiums  in  excess  of  the  loading  for  that  pur- 
pose. If  they  cannot  buy  business  with  that  provision, 
they  should  increase  the  provision  and  not  trench  upon 
other  funds  for  the  purpose.  It  is  only  by  doing  this 
that  the  infamy  of  charging  most  of  the  cost  of  procur- 
ing new  business  against  the  premiums  of  older  policies 
can  be  exercised.  Companies  should  also  be  inhibited 
from  paying  more  for  collection  than  is  warranted  by  the 
provision  for  collection.  A  little  more  latitude  is  required 
as  to  expenses  of  management,  any  excess  of  which  over 
the  provision  may  properly  be  charged,  when  divided 
into  the  ratio  of  amounts  of  insurance,  against  surplus  in 
other  expense  funds.  This  for  the  reason  that  while  cost 
of  procuring  insurances  is  largely  a  matter  of  contract, 
and  while  cost  of  collection  is  also  readily  determinable, 
expense  of  management  may  vary  considerably  and  sud- 
denly in  an  uiiibrsctfu 


REGULATIVE  STATUTES, 

LIFE  INSURANGE.-YIII. 


Two  different  species  of  laws  have  got  on  the  statute 
books,  proposed,  according  to  their  forms  at  least,  to 
prevent  discrimination  by  life  insurance  companies.  The 
enactment  of  such  laws  is  sought  to  be  justified  on  grounds 
of  public  policy,  it  being  set  forth  that  these  corporations 
are  performing  a  quasi-public  office  and  so  should  not  be 
permitted  to  treat  one  more  or  less  liberally  than  another. 

This  legislation  first  put  in  an  appearance  as  a  political 
move,  aimed  at  securing  the  negro  vote,  or,  in  any  case, 
at  giving  a  vent  for  abolition  sentiments.  Probably  both 
motives  contributed  to  cause  the  enactment  of  laws  com- 
pelling the  insurance  companies  to  accept  negro  risks  at 
the  same  rates  as  whites.  The  acts  have,  of  course,  been 
carefully  phrased  in  legal  language,  so  that  the  apparent 
intention  is  to  prevent  discrimination  because  of  color 
between  persons  of  the  same  age  and  expectation  of  life ; 
but  the  meaning  is  that  the  State  determines  arbitrarily 
and  against  actuarial  evidence  that  a  negro  of  the  same, 
age  and  general  health  and  family  history  as  a  white  man, 
has  the  same  expectation  of  life.  Such  a  law  operates, 
when  enforced,  as  a  check  on  the  determination  by  life 
insurance  companies  from  their  own  experiences  or  other 


go  REGULATIVE  STATUTES. 

data  what  are  true  relative  expectations  for  the  two  races. 
And,  in  many  cases,  it  has  also  operated  to  cause  com- 
panies to  reject  all  negro  applicants,  without  appearing  to 
have  established  any  rule  requiring  their  rejection.  In 
other  words  it  has  had  a  boomerang  effect  upon  the 
interests  of  the  persons  whom  it  was  hoped  that  it  would 
benefit. 

Scientific  classification  of  hazards  in  life  insurance  is  a 
thing  whieh  legislatures  ought  to  foster  and  encourage  ; 
for  only  by  that  course  can  the  benefits  of  insurance  be 
extended  to  cover  many  individuals  who  under  the  present 
plans  are  regarded  as  uninsurable.  When  life  insurance 
companies  have  learned  to  properly  and  accurately  dis- 
criminate, the  best  risks  will  receive  their  proper  rating 
and  many  who  are  now  refused  insurance  altogether  will 
find  it  possible  to  secure  at  adequate  rates  the  protection 
which  their  families  stand  in  need  of.  And  the  benefits 
of  intelligent  discrimination  will  not  stop  there.  In  so  far 
as,  for  instance,  the  rating  up  of  premiums  on  an  individ- 
ual's life  is  caused  by  anything  for  which  he  is  responsible 
or  which  he  can  remove,  it  will  have  the  effect  to  give 
an  inducement  for  a  correction  of  that  which  unfavorably 
affects  his  prospects  for  long  life.  By  this  means  life 
insurance  can  be  made  the  genuine  handmaid  of  hygiene, 
causing  the  abandonment  of  evil  habits  and  the  like  ;  and 
considerations  which  regulate  this  discrimination  might 
easily  have  an  influence  even  upon  heredity,  parents 
being  consciously  guided  by  the  lessons  which  the  life 
insurance  companies  inculcate  by  their  practices.  From 
these  facts  and  from  the  further  fact  that  the  true  mission 
of  insurance  is  to  accurately  determine  hazards  and 
charge  for  them,— a  thing  which  of  itself  has  a  beneficial 
social  influence,— it  clearly  appears  that  laws  against  dis- 
criminations should  apply  at  most  merely  against  arbitrary 
and  unreasonable  discriminations. 


LIFE  INSURANCE.  ?1 

The  acts  prohibiting  discrimination  on  account  of  coloT 
were  presumably  asked  for  by  the  negroes  who  were 
intended  to  be  the  beneficiaries.  It  has  been  followed  by 
acts  of  quite  another  nature,  known  as  "anti-rebate" 
laws  which  were  not  asked  for  by  their  pretended  benefi- 
ciaries but  by  that  body  of  men  among  whom  the  very 
persons  who  had  been  guilty  of  such  discrimination  were 
to  be  found.  These  bills  on  the  surface  were  for  the 
protection  of  the  policyholder  to  whom  no  rebate  was 
given  and  who  was  on  that  account  supposed  to  be  greatly 
aggrieved— not  because  he  did  not  get  a  rebate— but 
because  somebody  eise  did.  The  bill  proceeded  on  the 
theory  that  if  one  who  did  not  obtain  a  rebate  discovered 
that  his  neighbor  had,  he  would  consider  himself  injured, 
not  because  he  was  himself  missed,  but  because  his  neigh- 
bor was  not  missed.  Because  of  this,  he  was  understood 
to  be  demanding,  not  that  a  law  be  passed  compelling 
the  companies  to  lower  their  rates  and  give  everybody 
what  they  could  afford  to  give  his  neighbor,  but  that  they 
should  not  give  the  rebate  to  either  himself  or  neighbor. 
As  a  matter  of  fact,  no  such  a  body  of  unrebated  policy- 
holders  ever  put  in  an  appearance  in  the  legislative  halls 
or  petitioned  to  have  their  grievances  redressed.  The 
persons  who  did  so  appear  and  did  so  petition  were  the 
agents  and  companies  who  were  doing  the  rebating  and 
in  whose  power  it  already  lay  to  stop  doing  so. 

Such  a  situation  was  anomalous,  and  in  fact,  contradic- 
tory. Within  the  companies  the  old  policyholders  whose 
contributions  for  expenses  were  being  heavily  drawn  upon 
to  pay  the  enormous  commissions  that  made  the  rebates 
possible,  had  a  genuine  grievance,  perhaps  :  but,  had  they 
approached  the  legislature  at  all,  it  would  doubtless  have 
been  in  order  to  restrain  the  companies  from  paying  such 
enormous  commissions.  To  them  it  would  have  made 
little  difference  whether  part  of  these  commissions  went 


94  REGULATIVE  STATUTES. 

to  the  applicants  or  all  was  retained  by  the  agents  ;  indeed, 
they  would  have  been  likely  to  rejoice  to  learn  that  a  large 
part  had  reached  the  public  and  that  the  agents  had  not 
actually  become  millionaires. 

What  the  ultimate  effect  of  such  laws  may  be,  it  is  hard 
to  forecast.  Their  constitutionality  is  seriously  doubted 
by  many  able  lawyers.  If  they  are  constitutional,  a  cloud 
is  thrown  upon  the  validity  of  every  policy,  the  pre- 
mium of  which  has  been  rebated  in  part  or  wholly  ;  the 
holder  of  such  a  policy  is  thus  at  the  mercy  of  one  who 
is  at  best  a  law-breaker,  the  rebater  himself.  The  con- 
struction of  the  laws  has  so  far  been  such  as  to  make  them 
cover  much  more  than  was  probably  intended,  such  as 
to  prohibit  giving  commissions  to  insurance  agents  on 
policies  on  their  own  lives,  dating  policies  back  to  prevent 
increase  of  nominal  age,  taking  notes  for  premiums  with- 
out interest,  accepting  premiums  in  advance  and  allowing 
a  discount  and  to  prohibit  charging  a  less  premium  for 
the  first  than  for  subsequent  years,  though  all  be  charged 
alike.  The  propriety  of  laws  which  are  thus  in  restraint 
of  trade  is  very  questionable  ;  but  at  the  same  time  it  may 
be  that  this  is  merely  the  first  step  toward  the  taking  over 
of  insurance  by  the  State  which  thus  begins  its  encroach- 
ments upon  the  preserves  of  corporations.  Whether  that 
would  be  an  evil  or  a  good  may  be  a  disputed  question. 


REGULATIVE  STATUTES, 


LIFE  INSURANGE.-IX. 


What  statistical  information  the  State  should  require 
life  insurance  companies  to  furnish  to  the  public  has  ever 
been  a  matter  of  dispute.  Naturally  the  disposition  of 
individual  companies  is  to  supply  only  that  information 
which  in  each  case  gives  the  company  an  advantage  in 
comparison  and  to  suppress  that  information  which 
might  place  it  at  a  disadvantage.  This  is  the  legitimate 
outgrowth  of  the  competitive  system  and  is  precisely  the 
modus  operandi  of  all  companies  in  their  field  work, 
always,  of  course,  with  more  or  less  show  of  fairness  in 
order  to  make  the  comparisons  appear  plausible.  It  can 
hardly  be  adopted  as  the  information  to  be  legally 
required,  though,  because  there  would  be  utter  want  of 
uniformity.  Scarcely  two  companies  would  give  the 
same  information  about  their  condition  and  operations ; 
and  this  would  not  be  statistics,  whatever  else  it  might 
be.  The  first  principle,  then,  of  laws  requiring  statistical 
information  from  the  companies,  is  that  the  information 
required  of  all  the  companies  alike  should  be  of  the  same 
character,  so  that  comparisons  may  be  instituted. 

The  disposition  of  many  is  to  extend  the  province  of 
statistical  inquiry,  so  as  to  pry  into  many  details  of  man- 

93 


94  REGULATIVE  STATUTES. 

agement,  wherein  companies  generally  differ -greatly  and 
which  have  little  importance  to  the  public.  In  other 
words,  there  are  those  who  place  no  limit  to  the  proper 
scope  of  statistical  inquisition  ;  but,  instead,  would  make 
it  an  inquisition,  indeed,  so  that  the  mistakes,  petty  mis- 
doings and  extravagances  of  the  management  should  be 
annually  exposed.  Whether  it  might  not  be  a  good 
thing  to  enable  the  policyholders  of  companies  to  thus 
investigate  their  affairs,  independently  of  the  legal  author- 
ities, is  not  to  be  considered  in  this  place,  except  to  say 
that  in  the  case  of  mutual  companies  and  associations  such 
powers  appear  properly  to  belong  to  the  members  and, 
within  reasonable  bounds,  should  be  legally  granted  to 
them.  But  no  such  investigations  are  necessary  for  usual 
statistical  purposes  and  there  is  no  reason  why  the  insur- 
ance departments'  reports  should  be  lumbered  up  with 
them. 

To  determine  what  is  the  proper  limit  of  the  statistical 
inquiries  of  authorities,  it  is  well  to  consider  what  is  the 
purpose  of  such  inquiries.  First  of  all,  it  is  desired  to 
determine  the  financial  condition  of  the  companies,  which 
may  be  accomplished  by  ascertaining  their  resources, 
sufficiently  in  detail  to  make  their  value  apparent,  and 
their  liabilities.  Many  would  have  the  work  of  the 
department  stop  short  at  that  point,  condemning  all  further 
demands  as  inquisitorial  and  unreasonable.  They  thus 
take  a  position  which  is  directly  antagonistic  to  those 
whom  they  regard  as  meddlers.  It  appears,  from  sound 
premises,  that  their  attitude  is  no  more  defensible  than 
that  of  their  opponents.  The  State  properly  wishes  to 
protect  its  citizens  by  giving  them  information  about  the 
soundness  and  relative  strength  of  life  insurance  compa- 
nies ;  it  may  quite  as  properly  wish  to  furnish  them 'with 
officially  ascertained  information  concerning  the  relative 
success  of  the  management  of  these  companies,  especially 


LIFE  INSURANCE.  95 

since  in  almost  all  of  them  an  applicant  is  expeeted  to 
benefit  or  suffer  financially  by  that  management,  through 
his  participation  in  the  surplus.  Therefore,  statistical 
information  of  a  general  character,  having  a  direct  bearing 
on  the  economy  and  success  of  management,  should  be 
required  and  furnished  to  the  public. 

This  does  not  mean  that  the  companies  should  be  com- 
pelled to  exhaustively  expose  the  details  of  their  trans- 
actions each  year;  it  does  mean  that  they  should  be 
compelled  to  furnish  in  aggregates  just  that  information 
that  will  enable  the  public  to  intelligently  decide  which 
of  them  it  desires  to  patronize.  This  would  not  call  for 
as  much  detail  as  do  the  blanks  now  in  use,  which  do  not, 
with  the  exception  of  the  "  Gain  and  Loss  Exhibit," 
adopted  by  the  convention  of.  insurance  commissioners  in 
1895  but  afterward  discarded  by  most  of  them,  supply  infor- 
mation of  any  great  value  in  this  respect.  The  efficiency 
and  economy  of  management  of  any  company  can  be 
judged  by  comparing  three  things  in  its  actual  experience 
with  three  standards,  common  to  the  companies  or  at  least 
common  to  most  companies.  These  are :  Actual  losses  to 
expected  losses  according  to  the  standard  table ;  actual 
expenses  to  expected  expenses  which  is  the  aggregate 
"  loading : "  and  actual  interest  to  the  interest  necessary  to 
make  good  the  reserve  required  by  law.  If  the  intricate 
and  yet  inexact  "  Gain  and  Loss  Exhibit "  is  cut  down  to 
these  three  items  and  a  comparison  of  values  allowed  for 
surrendered  policies  to  their  reserves  added,  about  all 
there  is  in  it  that  is  valuable  will  have  been  preserved, 
and  the  information  will  be  in  a  far  more  readily  intelli- 
gible form. 

In  order  to  make  these  figures  valuable  for  statistical 
comparison,  care  must  be  taken  that  they  relate  to  the 
same  thing.  For  instance,  industrial  insurance  should  be 
tabulated  separately.  There  is  no  object,  also,  in  requiring 


96  REGULATIVE  STATUTES. 

this  information  from  a  stock  company  writing  non-par- 
ticipating insurance  only  or  requiring  it  concerning  non- 
participating  insurance  in  any  company  if  the  mortality, 
expense  and  interest  accounts  of  such  business  are  kept 
separate  by  the  company.  From  the  actual  interest,  also, 
should  be  deducted  the  interest  belonging  to  tontine  or 
other  accumulations  of  surplus.  A  more  thorough  tabu- 
lation of  expenses  is  also  desirable,  especially  a  comparison 
of  expenses  for  the  first  year  of  insurance  with  the 
"loading"  on  premiums  for  the  first  year  of  insurance. 
Probably  the  publication  a  single  time  of  the  facts  in  this 
matter  would  suffice  to  induce  the  companies  to  devise 
some  better  way  for  providing  the  money  to  procure  busi- 
ness, than  deducting  it  from  the  contributions  of  older 
policies. 

Not  only  would  the  discovery  and  publication  of  this 
apposite  and  significant  information  enlighten  the  public  ; 
it  would  also  prevent  the  successful  use  of  misleading 
ratios,  such  as  have  been  common,  and  would,  besides, 
tend  to  shame  the  companies'  managers,  when  the  show- 
ing was  especially  discreditable,  into  better  practices.  The 
report  of  the  Connecticut  department  covering  the  busi- 
ness of  1895  shows,  for  instance,  an  aggregate  expense  of 

97  per  cent,  of  the  aggregate  "loading "  in  all  the  compa- 
nies, which  means  that  some  companies  have  used  more 
than  the  entire  "  loading."     The  mere  exposure  of  such 
conduct  of  the  business  tends  to  correct  the  evil.    And 
when  the  true  ratios,  which  are  few  and  simple,  illustrat- 
ing the  efficiency  and  economy  of  management,  have 
become  common  property,  the  fallacious  and  misleading 
ratios  will  no  longer  answer  their  purpose.     Who,  for 
instance,  would  listen  to  a  comparison  of  death-rates  per 
thousand  insured  or  of  death  losses  to  interest  receipts, 
when  the  true  comparison  of  the  losses  companies  did 
have  with  the  losses  they  expected  to  have,  was  accessible? 


LIFE  INSURANCE.  97 

Other  countries  already  require  statistical  information  of 
this  sort,  conspicuously  Switzerland,  Prussia,  and  other 
European  nations.  But  in  many  cases,  as  in  the  "  Gain 
and  Loss  Exhibit,"  it  is  unfortunately  accompanied  with 
a  confusing  mass  of  annoying  inquiries  of  inconsiderable 
importance.  It  would  be  better  if  the  inquiries  were 
rigidly  confined  to  those  matters  which  are  neither  of  the 
realm  of  expert  accounting  or  actuarial  science,  but  which 
are  comprehensible  by  the  people  at  first  hand. 


REGULATIVE  STATUTES. 


PERSONAL  INSURANCE  OTHER  THAN  LIFE. 


To  this  present  time,  few  branches  01  insurance  appear 
Lo  have  required  less  regulation  than  personal  accident  and 
illness  insurance,  if  we  may  trust  the  legislatures  to  have 
reflected  by  their  acts  the  actual  demand.  And,  in  this 
respect,  reason  is  in  accord  with  experience,  for  the 
nature  of  this  class  of  insurance  is  so  simple  and  personal 
that  few  of  those  mysterious  and  ill-understood  matters 
which  called  for  regulation  in  life  insurance  are  encoun- 
tered. Commonly  the  contracts  are  simple,  direct 
promises  to  pay,  upon  the  occurrence  of  definitely 
described  contingencies,  definite  sums  of  money  for  a 
limited  period  of  time  or  upon  death  by  accident  a  cer- 
tain lump  sum  of  money  or  a  series  of  instalments  run- 
ning over  several  years.  The  contracts  are  usually  short 
and  distinct  in  all  of  their  provisions  and  cover  about  as 
broadly  as  could  be  asked. 

Two  or  three  things  about  these  contracts  as  generally 
drawn  require  attention.  One  thing  is  that  the  payment 
of  monthly  or  weekly  indemnity  is  often  deferred  until 
the  completion  of  the  limited  term  or  until  the  recovery 
from  the  ailment,  sufficiently  to  be  about  one's  business. 
Sometimes  the  injured  have  been  led,  not  recognizing 

99 


ioo  REGULATIVE  STATUTES. 

this,  to  make  proof  of  loss  before  really  recovered,  and 
have  thus  inadvertently  put  themselves  in  the  position  of 
having  released  the  company  from  further  liability.  Now 
and  then,  even  with  their  eyes  open,  injured  men  have 
been  compelled  through  dire  necessity  to  thus  prema- 
turely release  the  company.  This  should  be  effectually 
prevented  ;  if  necessary,  it  would  be  proper  to  pass  laws 
requiring  the  disability  payments  to  be  made  at  monthly 
intervals.  In  the  same  way  it  might  not  be  improper  to 
require  that  policies  which  pretend  to  cover  in  specific 
amounts  the  "loss  of  a  hand  or  a  foot  or  other  member, 
should  cover  the  entire  loss  of  the  use  of  that  member. 
Mere  caviling  disputes  on  technicalities  of  definition 
should  be  avoided  by  legislative  definition  of  the  mean- 
ing of  contracts,  if  required. 

Most  of  the  caviling,  however,  is  after  all  not  the  con- 
sequence of  difference  of  opinion  as  to  construction  of  lia- 
bility under  the  policy  contract  but  as  to  the  facts. 
Disability  is  so  broad  a  term  that  those  who  like  to  loaf 
at  a  good  monthly  income  might  very  well  conceal  their 
disinclination  to  work  under  that  euphemism.  But  in 
this  matter  at  the  present  time,  because  of  its  superior 
financial  ability,  the  company  is  likely  to  have  much  the 
advantage  over  the  poor  and  often  distressed  claimant ; 
and,  it  is  to  be  feared,  this  advantage  is  sometimes  made 
use  of.  Nowhere  is  the  desirability  of  a  cheap  and  speedy 
arbitrament  more  clearly  desirable  than  in  the  settlement 
of  disputes  between  such  companies  and  their  claimants. 
Voluntary  arbitration  will  not  do ;  they  have  that  now. 
What  is  needed  is  a  law  to  make  it  compulsory  to  submit 
disputes  of  this  nature  to  arbitrators  to  be  selected  in  the 
usual  way,  one  by  the  claimant,  one  by  the  company  and 
a  referee  by  these  two. 

The  effect  of  the  establishment  of  such  a  system,  with 
full  and  final  authority  given  to  the  arbitrators  to  deter- 


PERSONAL  INSURANCE  OTHER  THAN  LIFE.  101 

mine  all  questions  of  fact,  upon  the  almost  wholly 
neglected  branch  of  personal  insurance,  illness  insurance, 
need  not  be  merely  surmised.  Only  by  the  adoption  of  some 
such  a  system  for  settling  disputes  is  it  possible  for  illness 
insurance  to  thrive.  The  chief  difficulty  with  it  in  prac- 
tice is  that  it  is  very  difficult  to  determine  between  illness 
and  shamming,  and  also  to  distinguish  between  disabling 
and  non-disabling  illness.  All  these  are  questions  of  fact, 
concerning  which  arbitrators  are  likely  to  judge  as  fairly 
and  impartially  as  may  be  ;  the  truth  of  which  statement 
is  attested  by  the  circumstance  that  only  by  the  estab- 
lishment of  such  arbitration  by  law  has  illness  insurance 
been  made  to  thrive  in  Great  Britain  or  elsewhere.. 

Such  a  cheap,  speedy  and  impartial  means  of  determin- 
ing questions  of  fact  would  leave  few  questions  to  be 
determined  by  the  courts,  but  those  of  legal  construction 
of  the  contract.  These  are  not  so  many  ;  and,  with  the 
facts  determined  before'  the  case  was  appealed  to  the 
courts,  the  judgments  of  the  courts  would  in  each  decision 
be  made  to  stand  out  with  great  distinctness.  A  remedy 
might  be  sought,  as  has  been  done  in  fire  insurance, 
in  the  adoption  of  a  standard  policy,  but  the  desira- 
bility of  such  a  policy  is  exceedingly  questionable. 
The  tendency  of  personal  insurance  should  be,  as 
it  at  present  is,  toward  covering  more  and  more  contin- 
gencies and  giving  protection  to  more  and  more  classes  of 
men.  A  standard  policy  at  this  time  at  all  hazards,  would 
certainly  be  a  conservative  compromise,  and,  by  thus 
crystallizing,  would  be  a  stumbling  block  in  the  way  of 
making  personal  insurance  what  it  ought  to  be. 


REGULATIVE  STATUTES, 


FIRE  INSURANCE.— I, 


No  branch  of  insurance  has  been  so  regulated  as  fire 
insurance.  At  this  time  the  States  in  many  cases  regu- 
late the  whole  subject  from  end  to  end,  excepting  only 
the  rates  of  premium,  and  devote  some  effort  also  to  regu- 
lating the  rates  by  refusing  to  those  engaged  in  the  busi- 
ness the  privilege  of  harmoniously  agreeing  upon  them. 
The  State  dictates  how  and  with  what  capital  fire  insur- 
ance companies  may  set  forth  and  what  form  of  policy 
they  may  issue,  which  means  what  contract  they  shall 
be  privileged  to  make  ;  which  latter  provision,  at  least,  is 
a  degree  further  than  the  State  has  gone  in  other  lines  of 
insurance. 

A  reason  exists  for  it  in  fire  insurance,  however,  that 
does  not  exist  in  most  other  departments  of  insurance. 
In  fire  insurance  it  is  not  usual  for  property  to  be  insured 
in  one  company  only  ;  on  the  contrary,  it  is  in  many  cases 
covered  by  many  companies.  The  cause  of  this  is,  first, 
the  disinclination  of  companies  to  write  large  lines,  and, 
second  the  disinclination  of  the  insured  to  risk  all  in  one 
company.  The  insured  u  makes  assurance  doubly  sure  " 
by  not  chancing  all  in  one  company,  and  the  companies 
by  so  dividing  their  risks  that  in  all  probability  they  will 

103 


io4  REGULATIVE  STATUTES. 

not  experience  disastrous  losses  in  a  very  short  time. 
Both  companies  and  insured  have  become  wise  on  this 
point  as  the  result  of  great  conflagrations,  and  of  that  at 
Chicago,  especially. 

It  thus  happens  that  a  large  number  of  policies  are  run- 
ning concurrently  on  the  same  property.  But,  if  the 
terms  of  these  policies  are  different,  it  may  transpire  that 
there  are  serious  provocations  of  disputes  between  the 
companies  as  to  their  relative  liability.  This  situation  is 
not  endurable,  and  that  it  is  not  endurable  is  felt  by 
nobody  more  plainly  than  by  the  companies  themselves, 
which  instruct  their  agents  to  make  sure  in  all  cases  that 
these  concurrent  policies  read  and  cover  alike,  as  to  the 
written  portion.  But  it  is  clear  that  if  the  printed  por- 
tions of  policies  differ  widely  and  if  the  contingencies 
against  which  the  policies  cover  are  not  the  same,  there 
cannot  be  a  harmonious  adjustment  of  the  common  loss, 
even  though  the  written  portion  be  alike,  thus  describing 
in  the  same  manner  the  property  to  be  insured.  It  was 
to  cover  such  a  case  that  standard  policies  were  con- 
structed and  adopted  in  several  States,  and  the  companies 
enjoined  from  using  any  other  form.  The  benefits  are 
patent. 

But  uniformity  has  its  disadvantages  as  well  as  its 
advantages,  the  most  serious  disadvantage  being  a  disposi- 
tion to  crystallize  into  what  may  now  be  the  best  possible 
form  but  what  is,  notwithstanding,  far  from  a  perfect 
form.  It  is  the  office  of  insurance  to  insure,  to  cover  to 
the  uttermost.  The  exceptions  and  reservations  in  insur- 
ance policies  are,  so  far  as  they  go,  refusals  to  insure. 
They  are  justifiable  just  so  far  as  necessity  compels  their 
use  and  no  further.  Whether  necessity  does  so  justify 
their  use  is  a  matter  of  opinion  upon  which  men  may 
differ  according  to  their  knowledge  of  the  facts  and  con- 
cerning which  all  engaged  in  insurance  may  be  of  one 


FIRE  INSURANCE.  105 

opinion  now  and  of  quite  another  when  events  have 
demonstrated  the  fallacy  of  the  old  view.  Standard  poli- 
cies, when  permitted  to  stand  for  a  long  time  without 
alteration,  are  likely  to  represent  an  ultra-conservative 
phase  of  insurance  opinion,  and  to  contain  many  pro- 
visions which  the  most  enlightened  and  progressive 
underwriters  know  to  be  unnecessary. 

Moreover,  uniformity  means  the  suppression  of  indi- 
vidual experiment  which  is  sometimes  required  in  order 
to  explode  ancient  fallacies  and  bring  in  the  new  truth. 
It  sometimes  happens  that  under  a  uniform  system 
affairs  will  go  along  their  somnolent  course  and  the  false 
and  foolish  things  will  be  universally  accepted  as  verities 
and  never  inquired  into  nor  given  an  opportunity  to  show 
their  true  colors.  This,  however,  is  not  likely  to  be  the 
case  when  legislators  and  the  people  whom  they  repre- 
sent keep  up  a  constant  pressure  for  simpler  and  yet  sim- 
pler conditions  as  they  usually  do.  The  consequence  of 
that  is  that,  in  the  course  of  debate  and  contention,  any 
new  light  which  exists  is  brought  to  bear  on  the  subject. 

Within  the  past  year  considerable  impetus  has  been 
given  to  the  movement  for  simpler  forms  and  less  con- 
ditions by  the  paper  read  at  the  convention  of  the  Fire 
Underwriters'  Association  of  the  Northwest  by  Insur- 
ance Commissioner  Fricke,  of  Wisconsin,  and  the 
discussion  which  ensued  both  at  the  convention  and 
since  then  in  the  newspapers.  There  is  every  likelihood 
that  an  era  of  simplification  of  fire  insurance  contracts 
is  at  hand,  such  as  the  era  of  simplification  of  life 
insurance  contracts  which  has  resulted  in  life  insur- 
ance being  about  as  clean  and  unexceptionable  a  proposi- 
tion as  one  can  find  in  business.  But  it  is  hardly  to  be 
expected  that,  with  standard  policy  forms  in  constant 
use,  this  era  will  come  in  so  rapidly  as  in  life  insurance 
where  the  companies  were  in  active  and  bitter  competi- 


io6  REGULATIVE  STATUTES. 

tion.  There  one  daring  innovator  could  and  did  force 
indisputable  policies  on  his  competitors  by  urging  his  own. 

But  then  no  such  competition  could  well  exist  between 
fire  companies,  anyhow,  because  of  this  same  division  of  the 
risk  among  many  companies,  and,  also,  because  of  the 
frequent  renewals  of  policies.  The  competition  of  fire 
insurance  agents  for  business  has  always  been  and  always 
must  be  principally  in  rates  of  premium  or  in  other 
advantages  of  a  similar  nature  offered  the  insured,  so  long 
as  conditions  remain  anything  like  those  obtaining  at 
present. 

Encouragement  of  the  simplification  of  policies  might 
be  offered  by  law  through  an  amendment  to  standard 
policy  enactments,  piermitting  companies  to  waive  any  of 
certain  conditions  named  in  the  policy,  which  conditions 
are  in  the  opinion  of  the  legislators  not  in  the  interest  of 
the  insured.  But  great  care  should  be  taken  that  the  pro- 
visions of  the  standard  policy  which  are  favorable  to  the 
insured  are  not  also  privileged  to  be  waived.  And, 
after  all,  but  little  can  be  expected  from  such  a  privilege 
for  the  reason,  already  stated,  that  the  arguments  in 
favor  of  uniformity  in  concurrent  policies  are  too  potent  to 
be  disregarded  by  the  companies. 

It  appears,  therefore,  that  regulation  in  fire  insurance 
not  only  extends  to  the  extreme  in  some  cases  of  pre- 
scribing the  very  terms  of  policies,  but  also  that  it  is 
justified  in  doing  so  by  the  necessity  for  uniformity  in 
all  concurrent  policies  in  order  that  the  liability  of  com- 
panies may  be  so  fixed  and  determined  that  tne  insured 
may  not  be  involved  in  endless  disputes  and  litigation. 
And,  it  is  often  asserted,  there  is  the  same  reason  or  an 
equally  strong  reason  for  uniformity  in  the  standard  poli- 
cies of  .different  States.  But  in  this  view  we  cannot 
concur ;  for  the  only  objection  to  a  want  of  uniformity 
between  standard  policies  of  different  States  is  that 


FIRE  INSURANCE. 

diverse  policies  make  companies  appear  in  the  light  of 
granting  privileges  in  one  State  that  they  do  not  grant  in 
another.  This  is  a  mere  trifle  and  not  to  be  compared 
with  the  benefits  that  may  be  expected  from  the  separate 
studies  of  the  proper  provisions  of  standard  policies  by 
legislatures  and  their  committees,  compared  with  mere 
poll-parrot  duplication  by  them  of  forms  which  have  been 
adopted  in  other  States. 


REGULATIVE  STATUTES. 

FIRE  INSURAN6E.-II. 


No  definition  of  the  word  insurance  would  be  ade- 
quate and  fair  which  did  not  recognize  it  as  a  contract 
for  indemnity — that  is,  for  the  replacing  in  kind  or  value 
a  thing  which  has  been  lost.  It  seems  singular,  therefore, 
that  any  legislation  should  ever  have  been  conceived 
which  would  transmute  such  a  contract  into  one  of  pure 
gambling,  by  compelling  a  fire  insurance  company  in  any 
case,  to  pay  more  than  the  actual  value  of  the  property 
destroyed.  That  there  should  ever  have  been  such  legis- 
lation is  entirely  owing  to  the  unfortunate  practices  of 
insurance  companies,  mainly  in  the  adjustment  of  losses. 
These  practices,  in  a  nut-shell,  are  as  follows :  the  cause  of 
fires  and  the  amount  of  loss  are  determined  by  dicker 
between  the  insured  and  an  adjuster,  employed  by  the 
company,  or,  in  many  cases  where  more  than  one  company 
is  concerned,  a  number  of  adjusters.  In  practice,  the 
suspicion  of  fraudulent  incendiarism  has  always  been 
employed  as  a  means,  not  of  escaping  the  payment  of  loss 
entirely,  but  merely  to  cut  down  the  amount  to  be  paid. 
The  result  of  such  a  custom  is  that  adjusters  have  been 
keen  to  pounce  upon  even  the  remotest  cause  for  suspi- 
cion, or  the  faintest  shadow  of  a  possible  defense,  to 
force  a  compromise  with  the  policyholder  instead  of 

109 


no  REGULATIVE  STATUTES. 

paying  the  full  amount  claimed.  This  evil  has  prevailed 
to  such  a  degree  that  an  adjuster  considers  himself  exceed- 
ingly unfortunate  if,  in  any  given  case,  he  is  not  able  to 
effect  a  salvage  for  his  company. 

The  consequence  of  such  action  is  that  the  very  men  at 
whoni  the  practice  is  supposed  to  be  directed,  viz :  incen- 
diaries, prepare  for  it  by  swelling  the  inventory  of  the 
property  consumed.  On  the  contrary,  innocent  sufferer? 
by  fire  find  themselves  altogether  unprepared  for  the 
trained  adjuster.  Because  of  these  things,  there  has 
arisen  in  every  community  a  strong  sentiment  adverse  to 
fire  insurance  companies  and  to  their  methods  of  adjust- 
ment. In  several  States  this  adverse  sentiment  has  taken 
the  form  of  valued  policy  Acts  which  compel  fire  insur- 
ance companies  to  pay  the  full  amount  of  the  insurance 
whenever  insured  buildings  are  destroyed,  without  regard 
to  what  their  value  may  have  been.  These  laws  proceed 
on  the  assumption  that  insurance  agents  in  placing  insur- 
ance judge  of  the  value  of  property  and  they  make  this 
j  udgment  final  and  binding  on  the  company.  It  is  scarcely 
necessary  to  say  that  the  assumption  is  erroneous,  and  that 
the  average  person  who  can  be  secured  as  a  fire  insurance 
agent  is  not  capable  of  judging  of  the  value  of  properties 
with  anything  like  exactitude,  and  that  no  person,  however 
capable,  could  conceivably  know  so  much  about  the  value 
as  the  owner  in  most  cases. 

It  is  generally  conceded,  and  might  easily  be  demon- 
strated, that  the  loss  by  incendiary  fires  in  the  United 
States  has  a  deal  to  do  with  causing  the  excessively  high 
fire  insurance  rates  which  obtain  in  this  country.  It  is 
also  demonstrable  that  States  which  have  enacted  valued 
policy  laws  have  very  considerably  increased  the  insured 
fire  waste.  They  would  doubtless  have  still  more  increased 
the  fire  waste  if  it  were  not  for  two  things ;  first,  that  the 
law  is  not  enforced  except  at  the  option  of  the  claimant 


FIRE  INSURANCE.  in 

and  that  the  larger  number  of  adjustments  are  made  by 
agreement  between  the  insured  and  companies,  without 
reference  to  this  law  or  the  courts  ;  and,  second,  that  the 
law  does  not  apply  to  personal  property,  as  indeed  it  could 
not  without  being  absolutely  ridiculous. 

The  evil  which  valued  policy  laws  were  intended  to  cure 
is  a  real  one  and  should  have  been  taken  hold  of  in  a  more 
intelligent  manner  and  attacked  with  the  co-operation  of 
the  companies.  At  this  writing,  it  appears  as  if,  on  the 
initiative  of  the  city  of  Boston,  followed  by  the  State  of 
Massachusetts,  some  actual  progress  was  to  be  made  in 
dealing  with  the  evils.  This  initiative  consists  of  the 
appointment  of  fire  marshalls  whose  duties  are  to 
determine  the  causes  of  fires  and  to  bring  incendiaries 
to  justice.  The  establishment  of  such  offices  should  be 
supplemented  by  legislation  prohibiting  companies  from 
compromising  or  adjusting  claims  until  the  causes  of  fires 
have  been  determined.  This  policy  would  take  away  the 
excuse  and  incentive  for  whittling  down  honest  claims 
against  insurance  companies. 

It  may,  possibly,  scarcely  be  a  subject  for  legislation, 
but  the  insurance  companies  could  readily  assist  in  remov- 
ing all  prejudice  against  themselves  on  account  of  adjust- 
ments if  they  would  seek  to  establish  the  arbitration 
principle  in  determining  values  of  property.  It  might  be 
possible  to  secure  such  legislation  as  would  make  the 
findings  of  arbiters  final  and  beyond  appeal,  and  compel 
the  parties  to  submit  claims  to  arbitration.  In  the  absence 
of  such  laws,  there  is  little  doubt  that  most  claimants 
would  be  pleased  to  adopt  this  method.  In  lieu  of  that,  the 
companies  could  probably  make  their  adjustments  more 
impersonal  and,  consequently,  more  satisfactory,  if  they 
combined  to  employ  a  force  of  adjusters  for  each  State  who 
would  appear  in  a  more  or  less  public  and  semi-official 
character,  just  because  they  were  not  employed  by  any 


Iia  REGULATIVE  STATUTES. 

individual  company.  These  things  are  mentioned  as 
means  by  which  companies  could  assist  in  preventing  ill- 
advised  legislation.  If  they  do  not  take  the  initiative  in 
so  doing,  it  might  be  the  part  of  wisdom  for  the  State  to 
constitute  a  board  of  adjusters  and  require  all  adjustments 
to  be  made  by  and  through  them.  Such  legislation  may 
appear  to  be  somewhat  tyrannical,  but  it  cannot  be  denied 
that  there  are  grave  reasons  of  public  policy  why  some- 
thing should  be  done.  Under  present  systems,  many 
millions  of  dollars  of  property  belonging  to  innocent 
persons,  who  are  often  uninsured,  are  annually  incidentally 
destroyed  by  incendiary  fires,  against  which  the  present 
methods  of  adjusting  losses  interpose  no  serious  obstacle  ; 
and  millions  more  are  unnecessarily  paid  in  increased 
rates  because  of  incendiarism.  It  is  decidedly  against 
the  interests  of  the  State  that  such  conditions  should  be 
permitted  to  continue  and  it  might  properly  interpose 
if  the  companies  do  not  evince  a  disposition  to  correct  the 
evils  themselves.  It  goes  without  saying  at  any  rate,  that 
the  State  might  much  more  properly  thus  interpose  in  a 
manner  consistent  with  the  true  nature  of  insurance  as  an 
indemnifying  contract  than  in  a  manner  so  inconsistent 
as  are  valued  policy  laws.  The  proper  and  only  effective 
way  to  suppress  incendiarism  is  to  make  it  unprofitable 
and  unpopular  because  unprofitable- 


REGULATIVE  STATUTES, 

FIRE  INSURANGE.-III. 


A  desire  to  avoid  converting  fire  insurance  into  a  gam- 
bling instead  of  an  insurance  contract  has  prompted  fire 
insurance  companies  at  times  to  insert  clauses  in  their 
policies,  providing  that  in  event  of  fire  the  companies 
should  not  be  responsible  for  more  than  two-thirds  the 
value  of  the  property  destroyed.  This  clause  is  com- 
monly known  as  the  "  two-thirds  value  clause,"  and  has 
sometimes  been  strenuously  objected  to.  The  protests, 
however,  have  usually  been  to  the  effect  that  the  insured 
did  not  know  of  the  existence  or  of  the  effect  of  the  clause 
until  after  the  loss  had  been  incurred.  Few  persons  have 
had  the  hardihood  to  assert  that  when  such  a  clause  is 
agreed  upon  by  the  parties  and  fully  understood,  it 
involves  any  hardship.  It  may  be  true  that  in  some 
cases  the  insured  was  not  aware  of  the  existence  or  of 
the  effect  of  the  clause ;  but  such  a  condition  of  facts 
should'  not  be  held  to  render  it  of  no  effect  unless  it  is 
clear  that  he  could  not  with  ordinary  care  have  known 
of  its  presence.  A  slip  has  generally  been  pasted  on  the 
face  of  the  policy,  stating  in  large,  clear  type  just  what  is 
meant.  Such  being  the  case,  there  is  little  excuse  for 
want  of  knowledge  of  its  existence  or  meaning,  much 

"3 


114  REGULATIVE  STATUTES. 

less  excuse,  for  instance,  than  for  like  ignorance  of  the 
existence  or  effect  of  a  clause  printed  upon  the  policy. 

This  being  true,  such  a  condition  ought  to  be  upheld 
unless  it  is  plainly  inconsistent  with  the  law  or  against 
public  policy.  Public  policy,  so  far  from  being  opposed  to 
such  a  clause,  appears  to  Urge  its  adoption  as  a  general  or 
universal  rule,  inasmuch  as  insurance  companies  should 
be  confined  to  indemnity  contracts  as  distinguished  from 
gambling  contracts.  This  is  especially  applicable  to  con- 
ditions which  may  prevent  incendiarism  for  the  amount 
of  the  insurance.  Notwithstanding  this  evident  agree- 
ment of  the  clause  with  the  public  interest,  laws  have 
several  times  been  proposed  and  bills  have  been  favorably 
considered  which  would  prohibit  the  insertion  of  such 
conditions  in  policies.  The  only  powerful  argument  in 
favor  of  such  legislation  is  the  desirability  of  uniformity, 
coupled  with  the  assertion  that,  the  general  practice  being 
not  to  have  such  conditions,  one  is  thrown  off  his  guard 
and  does  not  look  for  it.  This  state  of  facts,  if  admitted 
to  exist,  might  call  for  a  reform  of  the  common  practice, 
so  that  all  policies  should  contain  such  conditions,  rather 
than  the  prohibition  of  such  a  safeguard. 

All  fire  insurance  policies  on  a  certain  class  of  hazards 
are  supposed  to  cover  a  similar  hazard,  both  as  to  kind 
and  as  to  degree.  Especially  is  this  true,  for  instance, 
of  policies  issued  upon  the  same  property.  As  is  well 
known,  the  premiums  for  fire  insurance  are  computed  as 
percentages  upon  the  sum  insured,  without  regard  to  the 
value  of  the  property  covered.  But  it  is  decidedly  not 
true  that  the  risk  of  loss  is  the  same  to  the  insuring  com- 
pany in  each  of  the  following  cases,  viz :  When  the 
property  is  insured  for  one-tenth  of  its  value  and  when  it 
is  insured  for  three-fourths  its  value.  A  loss  might  easily 
occur  which  would  be  total  as  to  the  former  insurance, 
but  would  be  only  partial  as  to  the  latter  insurance, 


r  LIFE  INSURANCE.  115 

This  means  that  there  is  a  diminishing  increase  of  the 
probability  of,  loss,  starting  from  a  very  low  amount  of 
insurance  and  proceeding  to  about  the  point  where  the 
value  of  the  property  and  the  amount  of  insurance  so 
nearly  coincide  that  the  moral  hazard  of  incendiarism  is 
interposed.  This  means,  that  improperly  handled,  on  a 
property  worth  $100,000,  a  company  could  afford  to  write 
each  $10,000  insurance  for  a  lower  premium  than  the 
preceding  $10,000,  up  to  about  the  ninth  $10,000,  for 
instance.  If  single  companies  took  entire  lines  in  most 
cases,  just  such  a  treatment  of  the  problem  would  doubt- 
less answer. 

But  companies  do  not  ordinarily  insure  entire  lines  and 
the  only  practicable  plans  to  deal  with  the  problem  that 
present  themselves,  are' :  either  to  make  a  falling  rate  on 
the  whole  risk,  according  as  the  aggregate  insurance 
rises,  up  to  a  certain  limit,  or  to  make  a  reduced  rate  on 
the  whole  line  in  consideration  of  the  insured  agreeing  to 
keep  his  insurance  up  to  a  certain  percentage  of  the  value. 
There  have  been  cases  of  the  application  of  the  former 
method,  but  it  is  plainly  inapplicable  to  most  situations 
in  insurance  practice.  On  the  contrary,  the  plan  of 
requiring  the  insurance  to  be  kept  up  to  a  certain  limit  is 
applicable  to  nearly  all  cases  where,  by  reason  of  a  multi- 
plicity of  small  losses,  a  full  line  of  insurance  is  desirable. 

The  principal  difficulty  about  this  plan  is  to  enforce  its 
provisions.  The  most  common  method  of  doing  this  is 
by  a  co-insurance  clause,  visiting  the  penalty  upon  the 
insured  that,  if  a  loss  occurs  and  it  appears  he  has  not 
secured  the  agreed  proportion  of  insurance,  he  shall  be 
deemed  a  co-insurer  for  the  unsecured  amount  and  shall 
bear  that  proportionate  part  of  the  ascertained  loss.  For 
instance,  suppose  that  the  clause,  as  it  usually  does, 
requires  the  insured  to  carry  an  insurance  equal  to  three- 
fourths  the  value  and  that,  when  a  fire  occurs,  it  is  dis- 


Ii6  REGULATIVE  STATUTES. 

covered  that  he  has  an  insurance  of  but  one-half  the 
value  ;  then,  since  one-half  is  two- thirds  of  three-fourths, 
he  will  be  a  co-insurer  to  the  amount  of  one-third  of  any 
loss.  In  other  words,  the  companies  will  be  liable  for 
only  two-thirds  of  the  ascertained  loss.  If  the  loss  is 
total,  this  will  make  no  difference  since  the  amount  of 
their  policies  was  but  one-half  the  value ;  but  if  the  loss 
be  only  partial,  then  the  clause  may  make  a  difference. 

Several  objections  have  been  entered  against  the  per- 
mission of  the  use  of  this  clause.  The  principal  claim, 
however,  is  that  it  is  not  well  understood  by  most  per- 
sons, even  when  they  have  consented  to  its  use.  It  must 
be  conceded  that  its  operations  are  somewhat  complex, 
and  that  they  might  not  be  clearly  understood  by  even 
a  man  of  fair  intelligence.  But  this  much  is,  doubtless, 
understood  by  practically  all  in  whose  policies  such 
clauses  appear,  viz :  that  they  are  under  obligations  to 
carry  insurance  up  to  a  certain  percentage  of  the  value. 
They  may  not  see  just  how  the  penalty  will  apply,  but 
they  do  know  what  is  expected  of  them,  and,  if  they  act 
in  good  faith,  there  is  not  likely  to  be  a  penalty.  Such 
policies  are  usually  issued  at  a  reduced  rate  or  it  is  speci- 
fied that,  only  with  such  a  condition,  will  they  be  issued 
at  all ;  consequently,  the  insured  is  sufficiently  advised  of 
the  importance  which  the  companies  attach  to  his  carry- 
ing a  certain  proportion  of  insurance. 

It  is  natural,  perhaps,  that  some  who  consider  the  mat- 
ter superficially  only,  should  protest  that  there  is  a  fatal 
inconsistency  in  insisting  upon  the  privilege  of  two-thirds 
loss  clauses  on  the  one  hand  and  of  three-fourths  value 
clauses  on  the  other.  Their  protest  will  rest  upon  the 
argument  that  if  it  is  desirable  to  limit  the  amount  of  the 
insurance  to  two-thirds  the  value,  it  cannot  be  desirable 
to  compel  one  to  carry  more  than  that,  namely  :  three- 
fourths  the  value.  The  answer  is  that  these  clauses  fit 


LIFE  INSURANCE.  117 

very  different  cases,  the  two-thirds  loss  clause  the  case  of 
insurance  on  small  properties  where  the  one-third  margin 
is  not  many  dollars  and  the  three-fourths  value  clause 
the  case  of  insurance  on  large  policies  where  one-fourth 
margin  is  many  dollars  and  where  the  tendency  is  to 
carry  under-insurance.  Over-insurance  is  at  once  against 
the  companies'  interest  and  the  public  interest  because  it 
fosters  incendiarism  ;  under-insurance  is  likewise  against 
the  companies'  interest  because  the  ratio  of  losses  to  pre- 
miums is  heavier  and  also,  to  a  limited  degree,  against  the 
public  interest  as  it  gives  an  unfair  advantage  in  rates  to 
those  who  under-insure  as  against  those  who  fully  insure. 
Both  the  companies'  and  the  public  interests  are  best 
served  by  a  reasonably  full  assurance,  a  sufficient  margin 
under  the  whole  value. 


REGULATIVE  STATUTES, 

FIRE  INSURANCE.— IV. 

No  department  of  insurance  has  become  so  popular  and 
so  generally  patronized  as  fire  insurance.  In  commercial 
development  its  progress  is  unequalled  by  even  life  insur- 
ance, successful  as  the  latter  has  been.  But  not  so 
much  can  be  said  for  it  in  the  matter  of  scientific  devel- 
opment. This  is  owing  very  largely,  if  not  entirely,  to 
the  complexity  of  the  hazard.  In  the  first  place,  almost 
every  fire  hazard  is  composed  of  three  separable  elements. 
First,  the  risk  of  fire  from  within,  known  as  the  internal 
hazard ;  second,  the  risk  of  fire  from  the  immediate  en- 
vironment, known  as  the  exposure  hazard  ;  and  third,  the 
risk  of  fire  from  remote  environment,  known  as  the 
conflagration  hazard.  In  the  making  of  rates  and  in 
computation  of  fire  insurance  reserves,  both  of  which 
things  are  empirical  and  not  scientific,  the  internal 
hazard  and  the  exposure  hazard  are  alone  taken  into 
account.  Only  the  most  prudent  and  cautious  of  the 
managers  of  companies  make  a  provision  by  holding  a 
large  surplus  to  meet  the  periodical  conflagrations,  caused 
by  the  dense  crowding  in  large  cities  or  by  prairie  or  forest 
fires. 

119 


120  REGULATIVE  STATUTES. 

An  effort  has  been  made  within  the  past  few  years  to 
reduce  rate-making  in  fire  insurance  to  a  science,  by  pre- 
paring a  schedule  of  minimum  rates  for  the  average  risk 
of  each  class,  covering  the  internal  hazard  only,  and  adding 
thereto  or  subtracting  therefrom,  according  to  certain 
fixed  schedules,  for  anything  which  is  esteemed  to 
diminish  or  increase  the  hazard  ;  thus  building  up  a  rate 
with  due  consideration  for  its  component  parts. 

The  difficulty  which  has  been  encountered  is  that, 
despite  the  existence  of  fire  insurance  now  for  nearly  two 
centuries  in  the  commercial  nations  of  Europe  and 
America,  there  are  less  statistics  concerning  its  intricate 
and  involved  hazards  than  concerning  any  other  branch 
of  insurance,  unless  it  be  personal  accident  and  individ- 
ual illness  insurance.  This  is  owing  to  the  indisposition 
of  companies  to  classify  their  experiences  and  make  them 
public.  There  are  so  many  fire  insurance  companies  with 
such  varying  standards  of  management  and  there  are  so 
many  jealousies  between  them  that  it  has  been  impossi- 
ble to  get  them  voluntarily  to  so  combine  their  statistical 
wealth  as  to  furnish  a  thorough  scientific  basis  for  rate 
and  reserve  computations. 

The  empiricism  of  the  present  system,  even  when  im- 
proved by  the  recent  advance  of  schedule  rating,  is  very 
evident  when  one  deals  with  reserves.  The  system  at 
present  existing  is  to  charge  against  a  company  one-half 
of  its  annual  premiums  as  a  reserve  on  the  basis  that  the 
same  has  not  been  earned  and  will  be  needed  to  pay 
losses  under  unexpired  policies.  Suppose  there  are  two 
companies,  one  of  which  is  prudently  charging  a  pre- 
mium in  excess  of  what  it  thinks  will  certainly  be  needed, 
the  other  imprudently  charging  one-half  the  premium 
demanded  by  the  former  company.  According  to  the 
present  system  of  computing  reserves,  the  company 
charging  adequate  premiums  will  be  made  to  show  a 


FIRE  INSURANCE.  Mi 

liability  in  proportion  to  the  actual  hazard  just  twice  as 
large  as  the  company  charging  inadequate  premiums. 
It  has  thus  happened  several  times  that  companies  which 
started  out  on  this  rate-cutting  program,  have  been  figured 
out  solvent  for  years,  when  by  any  sane  system  they  would 
have  been  found  insolvent  almost  from  the  day  they 
began  operations.  The  mere  fact  that  companies  which 
charge  widely  different  rates,  as  has  often  happened,  for 
precisely  the  same  protection,  is  of  itself  evidence  of  the 
unscientific  character  of  the  rate-making  of  the  present 
day  ;  and  the  uniformity  which  generally  exists  is,  on  the 
contrary,  no  proof  whatever  that  the  rates  are  being 
scientifically  adjusted.  This  uniformity  is  the  result  of 
combination  and  agreement ;  and  wherever  really  effec- 
tive measures  have  broken  up  these  combinations  and 
agreements,  rates  have  fallen  into  chaos  and  steadily 
tended  lower  and  lower. 

Insurance  is  so  important  a  feature  of  social  economy 
that  the  State  should  no  longer  permit  the  foolish  fears 
and  jealousies  of  companies  to  prevent  such  a  complete 
compilation  of  fire  insurance  statistics  as  will  make  it 
possible  to  change  fire  insurance  from  mere  guess  work 
to  scientific  prevision  within  the  next  two  decades.  This 
will,  to  be  sure,  involve  a  tremendous  amount  of  labor, 
but  the  labor  need  not  all  be  performed  as  the  compilation 
goes  on.  The  mere  calling  for  a  mass  of  information  con- 
cerning losses  on  certain  classes  of  risks  in  comparison 
with  amounts  insured  and  number  of  risks,  and  of  losses 
by  certain  causes  in  each  class,  as  compared  with  the 
number  and  amounts  of  risks  subject  to  that  cause  of  loss, 
would  within  a  few  years  furnish  such  a  body  of  informa- 
tion as  would  be  gladly  attacked  by  independent  actuaries 
and  statisticians.  There  is  little  doubt  also  that  the  com- 
panies, once  the  information  has  been  drawn  out  of  them, 
will  see  that  their  own  interest  lies  in  making  the  very  best 


122  REGULATIVE  STATUTES. 

possible  use  of  it.  Society  is  entitled  to  demand  such 
publicity  of  that  information  as  is  conducive  to  the 
diminishing  of  fires,  by  removing  the  causes  therefor,  and 
also  to  the  equitable  adjustment  of  fire  insurance  rates. 


REGULATIVE  STATUTES, 


LIABILITY  INSURANCE. 

Other  forms  of  property  insurance,  such  as  tornado  and 
wind  storm  insurance,  hail  insurance  and  such  property 
insurance  as  is  embraced  in  steam  boiler  insurance,  may 
be  passed  over  in  this  connection  almost  entirely  without 
comment,  These  forms  of  insurance  are  at  present  so 
little  developed  that  it  would  be  difficult  to  prescribe  regu- 
lative laws  which  would  apply  to  them  with  any  apposite- 
ness.  Moreover,  so  far,  po  evils  have  appeared  in  con- 
nection with  these  lines  of  insurance  that  call  for  any 
special  regulation.  The  principal  thing  at  present  requi- 
site for  them  is  enabling  and  fostering  legislation. 

On  the  contrary,  as  has  hitherto  been  pointed  out  in 
these  papers,  several  very  serious  evils  have  attended  the 
rapid  development  of  liability  insurance.  The  nature  of 
liability  insurance  is  different  from  that  of  any  other  class 
of  insurance  in  that  it  insures  a  man  against  the  conse- 
quence of  his  own  laches,  negligence  or  tort.  It  is  but 
one  degree  removed  from  insuring  a  man  against  the  con- 
sequences of  his  own  misdemeanor  or  crime.  Naturally, 
therefore,  it  requires  to  be  closely  watched,  if  permitted 
at  all,  and  to  be  sternly  regulated,  so  that  by  means  of 
it  no  man  shall  escape  wholly  the  consequences  of  his 
own  neglect  or  misconduct.  It  has  also  been  pointed 
out  that  adjustments  of  losses  under  this  form  of  insur- 

"3 


124  REGULATIVE  STATUTES. 

ance,  is  a  protracted  and  frequently  heartless  process. 
This  is  owing  partially  to  the  fact  that  the  claimants  are 
not  really  the  customers  of  .the  insurance  companies,  bu^ 
more  especially  to  the  circumstance  that  in  almost  every 
case  there  is  room  for  dispute  as  to  the  liability  of  the 
insured,  and  consequently,  of  the  insurance  company.  It 
has  been  seen  in  these  papers,  during  the  discussion  of 
the  adjustment  of  losses  of  fire  insurance  companies,  that 
out  of  the  possibility  of  disputing  the  validity  of  claims 
there  has  arisen  an  exceedingly  pernicious  system  of  com- 
promising them.  In  liability  insurance  this  has  reached 
its  worst  possible  stage.  At  this  day,  in  consequence  of 
the  vast  number  of  disputed  claims  and  the  enormous 
amounts  involved,  it  is  next  to  impossible  for  even  the 
most  expert  to  judge  whether  a  company  transacting 
this  business  is  solvent  or  insolvent. 

In  former  papers  of  this  series,  the  opinion  has  been 
expressed  that,  if  the  matter  could  be  brought  to  a  test 
in  the  courts,  it  is  altogether  probable  that  this  class  of 
insurance  would  be  abolished  as  in  contravention  of  the 
settled  principles  of  law,  This  is  entirely  owing  to  the 
circumstance  that  liability  policies  for  the  most  part  cover 
only  claims  for  which  the  insured  himself  is  liable.  It  is 
not  believed  that  policies  which  would  cover  all  accidents 
without  regard  to  the  liability  of  the  person  nominally 
insured,  even  though  it  should  furnish  him  incidentally 
the  protection  which  he  desires,  would  be  equally  in 
contravention  of  sound  legal  principles.  The  reason  for 
this  is  that  while  to  insure  the  owner  of  a  passenger  ele- 
vator against  the  consequences  of  criminal  carelessness  on 
his  part,  would  be  clearly  against  public  policy,  as  tend- 
ing to  increase  such  carelessness ;  on  the  other  hand,  to 
insure  all  persons  entering  and  riding  in  his  elevator 
against  injury  while  therein,  without  regard  as  to  whether 
he  was  liable  or  not  because  of  neglect,  would  be  entirely 


LIABILITY  INSURANCE.  125 

consistent  with  public  policy  and  this,  even  though  inci- 
dentally it  should  relieve  the  owner  from  liability.  The 
reason  for  this  is  apparent.  It  is  in  line  with  public 
policy,  that  citizens  of  the  republic  should  not  become  a 
public  charge  because  of  disablement  through  accident ; 
and  that,  whether  they  would  become  a  public  charge  or 
not,  they  should  not  be  deprived  of  the  productive  value 
of  their  time.  Consequently,  any  form  of  insurance 
which  would  bring  it  about  that  the  large  number  of 
persons  who  are  injured  every  year  in  passenger  elevators 
in  the  United  States,  should  surely  and  fully  be  reim- 
bursed for  such  an  injury,  would  be  a  public  benefit. 

This  principle  applies  with  even  greater  force  to  the 
case  of  workirigmen  engaged  in  occupations  that  are 
dangerous  to  life  and  limb.  In  the  construction  of  every 
great  building,  there  is,  in  addition  to  the  cost  which 
appears  in  the  outlay  for  materials  and  labor,  a  large  cost 
of  human  life  and  of  time  of  workingmen  disabled  tem- 
porarily by  accident.  At  present  this  loss  falls  entirely 
upon  the  individual  workingmen,  except  in  such  degree 
as  they  are  able  to  prove  that  it  was  occasioned  by  the 
neglect  of  their  employers.  Consequently,  it  does  not 
appear  in  the  price  of  the  building,  although  it  is  really  a 
legitimate  part  of  its  cost.  Now,  if  it  could  be  brought 
about  that  every  workingman  engaged  in  the  construc- 
tion of  these  buildings  was  insured  against  such  acci- 
dents without  regard  as  to  whether  his  employer  is  at 
present  legally  liable  or  not,  the  result  of  it  would  be  that 
the  cost  of  this  insurance  would  be  added  to  the  price  of 
buildings  and  the  buyers  of  buildings  would  pay,  as  they 
should,  this  item  of  cost,  viz :  the  cost  in  human  life, 
and  in  loss  of  time  through  accident.  Of  course  the  result 
of  this  would  be  beneficial  to  society.  It  would  also  be 
beneficial  to  employers  of  labor,  in  that  many  claims 
which  are  now  sustained  against  them  would  doubtless 


126  REGULATIVE  STATUTES. 

not  be  then  sustained.  It  would  not  be  any  great  disad- 
vantage, either,  if  the  result  of  this  class  of  insurance  was 
completely  to  manumit  employers  from  any  liability, 
and  if  the  only  penalty  which  employers  should  be  com- 
pelled to  pay  for  criminal  carelessness  thus  became  a 
criminal  penalty,  consisting  of  fine  or  imprisonment, 
imposed  by  society  for  the  wrong-doing  of  the  employer. 
There  is  a  very  evident  tendency  at  this  writing  among 
liability  insurance  companies  to  shift  their  position  from 
the  mere  insurance  of  employer  against  claims  by 
employes  to  a  more  complete  insurance  of  workingmen 
which  also  recognizes  the  workingmen  as  patrons  of  the 
companies  and  under  which  there  will  not  be  anything  like 
so  much  liklihood  of  dispute  as  to  the  liability.  The  com- 
panies keenly  feel  the  embarrassment  arising  from  the 
large  number  of  unsettled  lawsuits  which  continually 
hang  over  them.  Moreover,  they  find  that  the  average 
employer  who  would  be  likely,  if  uninsured,  to  dispute  the 
Validity  of  claims  against  him  to  the  last  ditch,  is,  when 
insured,  disposed  to  quarrel  with  the  company  for  doing 
the  same  thing  and  in  many  cases  to  quietly  offer  all 
assistance  possible  to  claimants  in  establishing  their  cases. 
Consequently,  notwithstanding  the  fact  that  insurance 
companies  generally  have  shrewder  lawyers  and  sharper 
adjusters  than  the  employers  had  before  them,  it  con- 
stantly happens  that  claims  are  enforced  against  them 
which  would  never  have  been  enforced  against  the 
employers,  if  not  insured.  It  is  well  known  also  that 
the  fact  that  the  suit  is  really  against  an  insurance  com- 
pany will  influence  the  average  juryman  in  determining 
his  verdict.  Consequently,  it  is  becoming  entirely  plain 
to  the  insurance  companies  that  it  is  to  their  interest  to 
so  extend  this  form  of  insurance  as  to  cover  not  merely 
claims  for  which  the  employer  is  liable  but  also  all  acci- 
dents occurring  while  workingmen  are  at  their  posts. 


LIABILITY  INSURANCE.  127 

This  tendency  should  be  encouraged  by  legislation.  It 
is  almost  wholly  beneficial ;  and,  in  its  working  out,  will 
doubtless  result  in  a  more  just  distribution  of  the  real 
costs  of  production.  It  is  true  that,  at  present,  it  is  mis- 
used in  many  cases  by  companies,  inducing  employes  to 
pay  for  this  insurance  and  then  rebating  as  a  commission 
or  otherwise  to  the  employer  a  part  or  all  of  the  pre- 
mium for  his  liability  insurance  which  is  included  in  the 
policy.  This  evil  perhaps  cannot  be  avoided  at  this  stage 
of  the  development  of  the  business.  The  cost  of  this 
insurance  should,  as  we  have  seen,  be  added  to  the  price 
of  the  commodities  purchased  as  it  is  properly  a  part  of 
that  price.  To  deduct  it  from  the  wages  of  the  working- 
men,  is  simply  to  distribute  a  cost  which  fell  upon  single 
individuals  unjustly,  so  that  it  now  falls  upon  the  whole 
body  of  workingmen  more  or  less  evenly.  This,  while 
still  unjust,  is  better  than  the  old  condition  at  any  rate. 
Incidentally,  it  may  work  out  in  either  of  two  ways,  viz  : 
by  the  wTorkingmeii  obtaining  a  higher  rate  of  wages 
because  of  this  addition  to  their  standard  of  living  or  by 
such  modifications  in  the  law  and  customs  of  the  country 
as  shall  make  this  class  of  insurance  obligatory,  taxing 
the  cost  of  it  primarily  upon  the  employer  who  would 
immediately  shift  it  to  the  purchaser  of  the  product, 
increasing  by  so  much  the  price  of  the  product. 


REGULATIVE  STATUTES, 


STATE  SUPERVISION. 

The  remaining  branches  of  insurance  have  so  little 
developed  that  it  would  be  practically  impossible  to  mark 
out  any  special  lines  of  regulation  to  be  pursued.  These 
will  have  to  develop  as  these  branches  of  insurance  them- 
selves develop  ;  consequently,  we  turn  from  the  subject  of 
regulative  statutes  to  the  related  subject  of  the  adminis- 
trative officer,  who  is  to  do  the  regulating. 

This  official  is  known  in  different  States  by  various 
names,  such  as  superintendent  of  insurance,  insurance 
commissioner  and  the  like.  The  first  officers  of  this 
character  in  this  country  were  the  insurance  commis- 
sioners of  the  State  of  Massachusetts.  There  were  two 
of  them ;  and  Elizur  Wright,  one  of  the  most  distin- 
guished actuaries  and  philanthropists  of  our  age,  was  one 
of  these.  This  commission,  as  originally  appointed  by 
the  legislature,  was,  perhaps,  hardly  expected  to  become 
permanent,  but  it  was  found  that  there  was  so  much  to 
regulate  and  that  the  interests  involved  were  so  important 
that  it  seemed  requisite  to  continue  the  office.  After 
several  years  the  number  of  commissioners  was  reduced 
to  one  and  Elizur  Wright  continued  in  this  office  for  a 
long  time,  during  which  the  lines  that  insurance  super- 
vision was  to  pursue,  were  pretty  well  mapped  out. 

At  the  first,  necessarily  a  considerable  measure  of  dis- 
cretionary power  was  given  the  commissioner.  The  valu- 
ation conditions  were  originally  adopted  by  the  com- 

1*9 


130  REGULATIVE  STATUTES. 

mission  in  Massachusetts  without  legislative  action. 
These  were  the  now  well  known  standards  of  the  Actu- 
aries' Table  and  4  per  cent,  interest.  The  adoption  of 
these  standards  was  afterwards  approved  by  the  legisla- 
ture ;  and,  although  Elizur  Wright  expected  them  to  be 
merely  temporary,  their  subsequent  adoption  by  various 
State  legislatures  has  made  them  the  standards  throughout 
the  United  States,  although  the  seventeen  offices' table 
was  long  ago  eschewed  in  the  land  from  which  it  came. 

The  duties  of  an  insurance  commissioner  may  be  classi- 
fied much  as  we  have  classified  the  legislation  which  he 
is  to  administer.  Thus  he  has  first  to  see  that  the  condi- 
tions of  the  enabling  statutes  are  complied  with  when 
companies  are  organized.  It  is  also  his  business  to  see 
that  the  prohibitive  and  restrictive  statutes  are  carried 
into  effect.  In  doing  this  he  should  co-operate  with  the 
States'  attorneys  in  bringing  about  the  prosecution  of 
offenders,  arid  he  should  also  promptly  report  to  the 
proper  prosecuting  officer  any  dereliction  under  these 
statutes  of  which  the  penalty  is  forfeiture  of  charter  or 
dissolution  of  the  corporation. 

But  by  far  the  most  important  office  he  has  to  perform 
is  to  give  force  and  effect  to  the  regulative  statutes  of  the 
State,  seeing  to  it  that  the  business  of  insurance  corpora- 
tions is  carried  on  as  contemplated  by  the  law.  In  order 
to  accomplish  this,  it  is,  of  course,  part  of  his  duty  to 
familiarize  himself  with  the  affairs  of  companies  by 
frequent  examinations  as  well  as  by  requiring  pe- 
riodical reports  in  which  all  statistics  and  facts  nec- 
essary to  a  proper  comprehension  of  the  conduct  of  the 
companies'  affairs  should  be  dravvii  out.  It  is  also 
a  part  of  his  duty  in  this  connection  to  give  to  the  public 
as  land-marks  to  those  who  patronize  insurance  compa- 
nies, such  full  statistical  information  relative  to  the  con- 
dition and  operations  of  the  companies  as  will  enable  the 


STATE  SUPERVISION.  .      131 

public  not  merely  to  decide  concerning  their  relative 
strength,  but  also  to  decide  concerning  the  relative  desira- 
bility of  their  policies.  For  this  purpose  it  will  be  neces- 
sary as  to  all  companies  issuing  mutual  or  participating 
policies  to  call  forth  such  information  as  will  enable  pros- 
pective purchasers  to  determine  for  themselves,  as  near 
as  may  be,  the  relative  profitableness  of  investments  in 
such  policies. 

The  insurance  commissioner  should  be  a  purely  adminis- 
trative and  in  no  case  a  judicial  officer.  The  frightful 
mismanagement  of  the  New  York  department  under 
several  superintendents  and  the  misconduct  of  many 
other  State  insurance  officers  may  be  traced  clearly  and 
unmistakably  to  the  abuse  of  the  discretion  which  was 
lodged  in  them.  There  is  no  reason  why  any  such  dis- 
cretion should  longer  be  lodged  there. 

The  laws  which  they  are  to  administer  should  be  clear 
and  mandatory.  For  instance,  concerning  the  organiza- 
tion of  new  companies,  the  law  should  clearly  state  what 
is*  necessary  in  order  to  organize  ;  and,  if  this  is  complied 
with,  no  discretion  should  be  given  to  the  insurance  com- 
missioner to  refuse  or  delay  the  necessary  authority. 
Moreover,  in  case  he  should  thus  refuse  and  delay,  there 
should  be  some  means  of  obtaining  a  hearing  by  the 
courts,  reviewing  his  decision.  In  the  same  manner,  it 
should  be  possible  to  call  him  before  the  courts  to  account 
for  his  conduct  in  any  case  of  permitting  companies  to 
organize  in  violation  of  law,  without  complying  with  the 
necessary  conditions  or  for  the  purpose  of  conducting  an 
illegal  business. 

Concerning  restrictive-  statutes,  also,  the  commissioner 
should  be  held  accountable  in  the  ordinary  courts  of  law 
for  neglect,  when  supplied  with  the  proper  evidence,  to 
refer  these  matters  to  the  prosecuting  attorneys  for  atten- 
tion and  to  co-operate  with  them  in  enforcing  the  law. 


133  REGULATIVE  STATUTES. 

In  the  same  manner,  again,  whenever  it  is  brought  to 
the -attention  of  the  commissioner,  with  proper  evidence, 
that  companies  are  carrying  on  their  business  in  a  man- 
ner not  in  compliance  with  law,  are  exceeding  their 
powers  or  are  insolvent  and  are  permitting  their  obliga- 
tions to  go  to  protest,  it  should  be  incumbent  upon  him  to 
take  action  by  referring  the  matter  to  the  prosecuting 
officers  and  by  co-operating  with  them  in  seeing  that  the 
law  is  complied  with. 

Concerning  each  of  these  things,  there  should  be  no 
discretion  ;  and  any  attempt  on  the  part  of  the  commis- 
sioner to  exercise  discretion  should,  when  it  comes  to  the 
attention  of  a  court  of  record,  be  sufficient  reason  for  a 
suspension  from  office  by  that  court,  until  all  the  facts 
are  considered  and  his  guilt  or  innocence  determined. 

Moreover,  the  companies  should  themselves  have  access 
to  the  courts  with  a  speedy  hearing,  whenever  they  con- 
sider that  the  decisions  of  the  commissioner  are  not  in 
accordance  with  law  arid  are  injurious  to  them  and  their 
interests.  This  right  of  appeal  to  the  courts  should  also 
be  granted  to  companies  from  without  the  State 
whether  they  have  already  been  admitted  or  not.  The 
abuse  of  the  discretion  unfortunately  granted  them  by 
certain  commissioners  during  recent  years  should  be 
sufficient  evidence  of  the  necessity  for  such  an  appeal, 
even  though  the  very  nature  of  the  case  did  not  make 
it  desirable. 

At  the  present  time  the  commissioners  of  most  States 
have  such  discretion  that  they  can,  with  comparative  im- 
punity, permit  companies  to  be  organized  to  transact 
illegal  business,  may  wink  at  constant  violations  of  the 
restrictive  and  prohibitive  statutes  of  the  State  and  may 
also  fail  to  carry  out  the  provisions  of  the  regulative 
statutes.  This  comparative  impunity  arises  from  the  fact 
that  the  only  way  to  reach  these  officers  ordinarily,  is 


STATE  SUPERVISION.  133 

through  an  impeachment.  Indeed,  in  at  least  one  State, 
it  is  not  sure  that  there  is  any  means  of  reaching  him. 
The  legality  of  an  impeachment  has  been  itself  im- 
peached and  it  is  doubtful  whether  it  would  hold  at  law. 
The  result  of  such  legislative  neglect  is  that,  during  his 
term  of  office,  the  insurance  commissioner  is  the  most 
irresponsible  officer  in  the  whole  roster. 

When  there  is  added  to  this  absolutely  unnecessary 
discretion  the  further  sole  power  to  decide  whether 
receivership  proceedings  shall  be  begun  against  insurance 
corporations,  it  must  be  conceded  that  the  power  to 
abuse  the  office  against  the  interests  of  the  people  is  mag- 
nified to  an  extraordinary  degree.  Of  course,  the  power 
to  move  for  a  receiver  should  be  lodged  in  the  insurance 
commissioner,  but  that  this  power  should  be  exclusive  is  to 
deprive  every  judgment  creditor  and  in  fact  all  parties  at 
interest  of  the  most  valuable  means  of  self-protection. 
In  no  case  has  this  power  failed  to  be  abused  and  to  be 
exercised,  not  for  the  benefit  of  the  public  but  for  the 
benefit  of  rascally  managers  who  have  lined  their  own 
pockets  while  the  indebtedness  of  the  companies  intrusted 
to  their  care  is  piled  up  to  many  times  the  resources. 
Establishment  of  insurance  supervision  is  not  undertaken 
for  the  purpose  of  depriving  the  people  of  those  means  of 
protecting  themselves  which  they  already  possessed,  but 
is  certainly  for  the  purpose  of  adding  to  the  imperfect 
means  which  they  already  possessed,  the  additional  safe- 
guard of  a  watchful  public  officer  with  better  access  to 
sources  of  information  than  they  can  possibly  have.  This 
purpose  is  completely  defeated  when  the  commissioner  is 
vested  with  such  authority  that  people  who  have  been 
injured  by  the  misconduct  of  companies  are  compelled  to 
appeal  to  him  for  redress,  without  having  the  right  to 
compel  him  to  take  action  in  their  behalf. 


REGULATIVE  STATUTES. 

STATE  INSURANCE. 

Insurance  is  essentially  a  community  function.  It  is 
not  merely  to  the  interest  of  an  individual,  for  instance, 
that  his  property  should  not  be  destroyed  by  fire  and  he 
thus  be  reduced  to  poverty,  but  it  is  also  to  the  interest  of 
the  community  that  this  should  not  take  place.  The  com- 
munity is  interested  in  seeing  to  it  that  no  individual  is 
deprived  of  his  property  except  as  a  result  of  his  miscon- 
.duct.  The  burden  of  supporting  those  individuals  who  are 
brought  to  pauperism  by  the  loss  of  property  inevitably 
falls  upon  the  community.  Moreover,  the  pauperization 
of  individuals  results  commonly  both  in  the  deterioration  of 
their  own  characters  and  also  in  damage  to  their  posterity, 
all  of  which  things  are  serious  injuries  to  the  community. 

The  state  of  affairs  which  would  be  most  healthful  in  a 
community  would  be  that  each  individual  was  certain  to 
receive  the  exact  reward  for  his  own  efforts,  without  dim- 
inution through  bad  luck  or  increase  through  good  luck. 
In  a  community  where  such  a  state  of  affairs  existed,  the 
incentive  to  right  action  would  on  the  whole  be  precisely 
sufficient  and  the  incentive  to  wrong  action  would  not 
exist  at  all.  Insurance  is  an  effort  to  equalize  conditions 
and  to  bring  about  this  ideal  state  of  affairs.  At  pres- 
ent, having  been  only  in  the  earlier  stages  of  evolution,  it 
is  of  course  imperfect ;  but  it  is  doing  a  good  work  in  that 
direction.  As  now  designed,  it  is  only  roughly  equalizing 
conditions,  and  is  in  fact  aimed  merely  to  ward  off  most 
disastrous  losses,  such  as  by  fire,  wind-storm  or  other  very 
destructive  elements.  Moreover,  not  every  individual  is 
protected  by  insurance.  It  has  grown,  as  it  perforce  must 
have  grown,  through  its  earlier  stages  as  a  purely  volun- 
tary system,  and  by  that  means  has  convinced  by  far 

135 


136  REGULATIVE  STATUTES. 

the  most  of  the  wise  and  prudent  citizens  of  civilized  coun- 
tries of  its  merits  and  desirability.  No  man  of  intellect 
thinks  of  an  insurance  premium  as  a  gratuity  or  contribu- 
tion for  the  benefit  of  others ;  the  value  of  protection,  even 
though  no  loss  occur,  is  now  generally  understood. 

What  is  not  yet  quite  understood  is  that  the  necessities 
of  the  community  do  not  really  permit  that  insurance 
should  be  a  voluntary  affair.  For  the  purpose  of  bringing 
about  conditions  most  conducive  for  its  well-being,  the 
community  is  warranted  in  insisting  that  every  individual 
should  contribute  his  portion  of  the  net  loss  by  ill  luck,  in 
consideration  of  protection  to  himself.  It  is  quite  as  much 
the  business  of  the  community  to  see  to  it  that  no  individ- 
ual receives  more  than  the  reward  for  his  efforts  in  the 
form  of  good  fortune,  as  it  is  to  see  that  individuals  are  not 
crushed  by  misfortune.  The  fact  is  that  most  strokes  of 
fortune  are  two-faced,  what  is  good  luck  to  one  individual 
being  bad  'luck  to  his  neighbor.  Thus,  the  destruction  of 
a  large  part  of  any  commodity  would  result  in  the  increase 
of  the  price  of  what  remains,  this  being  ill  fortune  to  those 
who  possessed  the  part  that  was  destroyed  and  at  the  same 
time  good  fortune  to  those  who  possessed  the  part  that  was 
not  destroyed.  From  this  homely  illustration,  it  will  be 
observed  that  the  fortunate  would  not  really  contribute 
anything  for  insurance  out  of  what  would  have  been  their 
reward  if  no  part  of  the  commodity  had  been  destroyed. 
What  they  really  would  do  is  to  contribute  the  benefit 
which  would  have  accrued  to  them  through  a  good  fortune 
that  was  the  ill  fortune  of  their  neighbor.  Of  course 
there  is  a  real  loss  to  the  community  in  any  case,  the  com- 
munity receiving  less  of  the  commodity  for  the  money  it 
pays. 

Outside  of  these  general  principles,  which  seem  to  con- 
clusively demonstrate  that  insurance  is  really  a  community 
or  State  function,  and  that  as  soon  as  the  persons  compos- 


STATE  INSURANCE.  137 

ing  the  community  are  educated  up  to  the  point  of  toler- 
ating it,  it  should  become  compulsory,  there  are  still  other 
considerations  why  some  forms  of  insurance  especially 
should  be  taken  over  by  the  State.  For  instance,  there  are 
forms  of  insurance  which  are  so  general  in  their  application 
and  so  difficult  to  apply,  that  anything  like  adequate 
arrangements  through  private  initiative  are  practically 
impossible.  For  example,  the  most  serious  losses  to  indi- 
viduals come  under  the  category  of  personal  insurance, 
including  illness,  accident  and  the  infirmities  of  old  age. 
It  is  almost  impossible  for  private  companies  to  cover  these 
hazards  with  any  such  completeness  as  to  serve  the  pur- 
pose of  the  community.  In  consequence  the  community 
is  already  engaged  largely  in  this  form  of  insurance  with- 
out having  the  advantage  of  its  being  undertaken  in  a 
business-like  manner.  Instead,  it  is  put  in  the  form  of 
charity,  wrhich  it  is  not  at  all,  or  at  least  ought  not  to  be  at 
all.  Our  hospitals,  almshouses  and  public  institutions  of 
that  character  are  all  of  the  nature  of  insurance ;  but, 
instead  of  being  wholly  beneficial,  as  insurance  is,  they  are 
really  deleterious  to  the  best  interests  of  the  community. 
The  distinction  is  that  he  who  receives  a  benefit  from 
insurance  receives  that  which  is  his  right  and  not  charity. 
The  difference  between  a  man  living  through  a  decrepit- 
old  age  on  an  annuity  due  him  from  an  insurance  company 
and  a  man  equally  decrepit  living  in  an  almshouse  upon 
the  grudging  charity  of  the  community  is  all  the  difference 
between  right  social  conditions  and  wrong  social  condi- 
tions ;  and  we  have  already  reached  such  a  point  in  statis- 
tical information  and  actuarial  skill  that  it  would  not  be 
impossible  to  devise  a  system  of  personal  insurance  which 
should  cover  from  before  one's  birth  till  after  one's  death 
so  completely  that  no  individual  in  the  community  could 
fail  to  receive  a  fair  reward  for  his  efforts,  with  all  the  ele- 
ments of  ill  fortune,  including  even  the  ill  fortune  of  a  bad 


138  REGULATIVE  STATUTES. 

heredity,  equalized  and  thus  shut  out  of  the  problem. 
.  Outside  of  this  form  of  insurance,  which,  so  far  as  I  can 
see,  can  never  be  undertaken  with  any  prospect  of  great 
success  except  by  the  action  of  the  whole  community, 
there  are  other  forms  which  can  be  successfully  carried  on 
by  private  initiative  but  which  in  all  probability  could  be 
conducte'd  in  a  far  more  efficacious  and  economical  manner 
by  the  State.  One  of  these  is  fire  insurance  on  buildings. 
The  State  could,  by  appraising  the  value  of  buildings  and 
collecting  a  compulsory  fire  tax  adjusted  roughly  accord- 
ing to  the  hazards,  give  a  very  much  more  economical  fire 
insurance  than  is  now  given  by  companies.  It  would 
probably  wipe  out  the  hazard  of  over-insurance  on  build- 
ings completely,  and  would  doubtless  also  reduce  incendi- 
arism to  a  minimum.  The  expense  of  collecting  such  a  tax 
of  course  is  nothing  compared  with  the  present  expense  of 
collecting  fire  insurance  premiums.  This  system  is  in  suc- 
cessful operation  in  some  countries  already. 

Life  insurance,  which  is  conducted  by  the  regular  com- 
panies of  the  United  States  at  so  extravagant  a  rate  of  ex- 
pense, could  probably  be  carried  on  by  the  State  to  great 
advantage  either  upon  the  voluntary  system  or  upon  the 
compulsory  system.  An  example  of  the  success  of  the 
system  of  voluntary  State  life  insurance  is  given  in  the 
experience  of  the  life  insurance  department  of  New  Zea- 
land, which  has,  in  competition  with  other  excellent  com- 
panies, built  up  resources  of  more  than  $10,000,000.  It  is 
also  now  doing  more  than  one-half  the  new  business  annu- 
ally transacted  in  the  province.  There  has  been  no  large 
experiment  in  compulsory  State  life  insurance ;  but  the 
New  Zealand  department  has  constructed  the  best  mortal- 
ity table  ever  derived  from  statistics  of  the  general  popula- 
tion, which  shows  beyond  a  question  that  on  the  compul- 
sory plan  it  could  insure  all  of  the  people  of  that  colony  as 
they  reach  the  age  of  20  years  at  a  net  cost  to  each  of  far 


STATE  INSURANCE.  139 

less  than  it  now  costs  on  the  volunteer  plan,  which  is  open 
to  selected  lives  only.  It  will  be  observed  from  this  that 
the  price  which  we  pay  for  permitting  a  part  of  the  people 
who  are  insurable  under  present  standards  to  go  without 
insurance  or  to  lapse  insurance  at  will  is  to  be  unable  to 
protect  the  families  and  dependents  of  those  who  are  not 
up  to  the  standard  now  required  for  insurance.  It  is  very 
evident,  therefore,  that  the  voluntary  system  of  insurance 
does  not  really  serve  the  purpose  of  a  community  in  that  it 
still  leaves  a  large  portion  of  the  people  exposed  to  disaster 
through  inability  to  obtain  insurance,  and  another  large 
portion  exposed  to  disaster  through  their  obstinate  refusal  to 
insure.  And  when  it  appears,  as  it  does  from  this  New 
Zealand  mortality  inquiry,  that  the  consequence  of  this 
is  that  those  who  do  insure  pay  a  higher  price  for  it  than 
needs  to  be  paid,  it  is  clear  that  it  would  be  the  part  of  wis- 
dom for  a  civilized  community  to  undertake  insurance  as 
a  public  monopoly  and  on  the  compulsory  plan. 

It  must  be  remembered,  however,  in  connection  with 
these  considerations,  that  there  is  nothing  inherent  in  the 
plan  of  State  insurance  that  will  certainly  make  it  succeed. 
Success  will  depend  principally  upon  whether  the  ideas  of 
the  people  concerning  insurance  have  evolved  to  the  point 
of  a  very  general  appreciation  of  its  value.  With  a  strong 
public  opinion  supporting  it,  and  with  adequate  scientific 
investigation  of  the  necessary  data  before  undertaking  it, 
there  is  little  question  that  State  insurance  would  succeed 
on  the  compulsory  plan.  But,  wherever  started  under 
misapprehension  of  its  real  character,  without  sufficient 
actuarial  examination  of  what  is  possible  and  without  any 
real  demand  for  it  on  the  part  of  the  people,  it  would 
almost  certainly  score  a  failure.  Notwithstanding  which, 
there  seems  to  be  little  question  that  it  is  the  goal  toward 
which  the  evolution  of  both  insurance  and  the  commu- 
nity is  speeding. 


JUST  PUBLISHED. 


©ems  ©f  the 


BY  MILES  MENANDER  DAWSON, 


Mr.  Dawson's  lyric  poems  are  here  collected  into  a  neat  vol" 
ume.  Among  them  may  be  mentioned.  "  Solidarity,"  inspired  by 
the  vicarious  self-sacrifice  of  railway  employees  for  the  starving 
workmen  at  Pullman,  111.  This  poem  was  at  once  translated  into 
German,  and  has  girdled  the  world.  Another  celebrated  poem, 
"  Sunset,"  is  sure  to  charm.  The  range  of  the  volume  is  great ; 
from  pathetic,  half -humorous  poems  "  in  character  "  to  patriotic 
and  humanitarian  strains. 

Two  translations  appear  in  the  book,  both  from  the  Norwe- 
gian. One  is  "Araljot's  Longing  for  the  Sea,"  the  most  eloquent 
single  poem  of  Bjornstgerne  Bjornson,  worthy  to  be  classed  with 
Byron's  "Apostrophe  to  the  Ocean."  The  other  is  Henrik  Ibsen's 
longest  lyric  poem,  regarded  the  forerunner  of  his  great  drama, 
"Brand,"  and  justly  prized  by  all  admirers  of  Ibsen.  These 
poems  have  never  before  appeared  in  the  English  language. 

"Kickapoo  River  Ballads"  form  one  division  of  the  book. 
The  titles,  such  as  "  Seein' My  Sweetheart  Home,"  "  Mandy's 
Comin' Out,"  "All  Along  O' Him,"  and  "Exac'ly,"  will  indicate 
the  range.  The  quaintness  of  language,  pleasing  style,  tender 
pathos  and  exquisite  humor  will  appeal  to  all. 

The  book  closes  with  a  lyric  drama,  "  Kismet,"  of  a  new  type, 
which  must  be  seen  to  be  appreciated.  The  drama  unfolds 
itself  through  lyric  poems,  representing  the  emotions  of  the  prin- 
cipal actor.  The  dramatic  force  of  this  form  of  presentation 
illustrates  the  excellence  of  the  Greek  drama,  on  which  it  is 
modeled.  It  introduces  a  new  idea  in  English  poetry.  The 
story,  itself,  is  a  profoundly  touching  tale  of  human  love,  devo- 
tion, suffering  and  desolation. 


CLOTH,  160  PAGES,  $1.00. 
Popular  Edition,   PAPER,  25  CENTS. 


THE  HUMBOLDT  LIBRARY, 
64  FIFTH  AVE.,  NEW  YORK; 


THE  EFFECTS 

OF 

FREE  SURRENDER  AND  LOAN  PRIVILEGES 

IN 

LIFE  INSURANCE. 


BY  MILES  MENANDER  DAWSON. 

A  demonstration  of  the  folly  of  attempting  to  make 
profits  from  lapses.  Republished  from  the  Magazine  of 
the  American  Statistical  Association,  by  the  Associa- 
tion. 

PAPER,     -     -  35  CENTS. 

AMERICAN  STATISTICAL  ASSOCIATION,  BOSTON, 

AMERICAN  LIFE  INSURANCE  METHODS, 

A  SHORT,  DISCRIMINATING  DESCRIPTION  OF  THE 

DIFFERENT  FORMS  OF  LIFE  INSURANCE 

OFFERED  IN  THE  UNITED  STATES. 


Republished  from  the  Annals  of  the  American  Acad- 
emy of  Political  and  Social  Science,  by  the  Academy. 


PAPER,     -     -     -     15  CENTS. 


AMERICAN  ACADEMY  OF  POLITICAL  AND  SOCIAL 
SCIENCES,  PHILADELPHIA,  PA. 


'ELSIE.' 

A  REALISTIC  NOVEL  FROM  THE  NORWEGIAN  OF  ALEX- 
ANDER L.  KJELLAND. 

TRANSLATED  BY  MILES  MENANDER  DAWSON. 


"A  dainty  little  volume — a  story  partakiug  of  the  true  Christmas  flavor 
which  the  Norwegian  and  Swedish  authors  so  well  know  how  to  impart." 
— Progressive  Thinker. 

"There  is  a  good  deal  of  clever  character  sketching  in  the  book."— 
Chicago  Ledger. 

"A  very  charming  and  profoundly  sad  story  from  a  Scandinavian 
author  who  is  considered  to  be  the  ablest  living  novelist  of  Norway.  *  *  * 
Realistic,  but  not  offensively  so,  and  the  characters  are  drawn  in  such 
vivid  colors  that  they  seem  to  be  living  personages.  This  is  the  best  short 
story  of  the  season,  and  should  have  a  wide  reading.  In  many  parts  we 
are  reminded  strongly  of  Dickens ;  but  the  Scandinavian  is  the  more 
powerful  writer." — Salem  (Oregon)  Independent. 

"This  beautiful  story  made  the  author's  fame  and  established  his  repu- 
tation. Kjelland's  books  are  not  merely  successful  as  literary  feats  ;  they 
are  popular,  and  "  Elsie  "  is  the  most  popular  of  all.  *  *  *  The  style  is 
pleasing  and  entertaining,  and  the  mechanical  make-up  of  the  book  is 
unique  and  dainty." — Farmer's  Tribune. 

"  In  the  matter  of  literary  finish  Kjelland  is  the  highest  exponent  of 
the  language.  His  beautiful  and  realistic  story  of  "Elsie"  laid  the  first 
foundations  for  his  future  fame,  and  established  his  reputation.  It  is 
admirably  translated  by  Mr.  Miles  Menander  Dawsou,  who  follows  the 
story  so  closely  that  it  loses  none  of  its  quaint  style  and  crispness  and 
dramatic  power.  Elsie  belongs  to  a  class  of  girls  who  are  forced  by  the 
natural  conditions  of  life  around  them  to  be  bad.  She  is  a  representative 
type  of  her  class,  and  will  perhaps  be  better  understood  in  the  future 
from  the  author's  interpretation  of  her  actions.  The  tiny  volume  is  full 
of  clever  satire  on  the  benevolent  societies,  which  appear  to  exist  as  a 
sort  of  punishment  for  those  steeped  in  crime,  and  refuse  to  extend  a 
helping  hand  to  those  whose  young  lives  are  greatly  endangered  through 
daily  companionship  with  dangerous  and  evil  disposed  characters.  It  is 
very  easy  to  detect  the  writhing  scorn  with  which  Kjelland  speaks  of 
those  charitable  organizations  that  are  not  charitably  disposed,  but  only 
exist  as  a  means  of  bringing  highly  respected  and  eminent  townspeople 
before  the  public.  He  portrays  life  with  insight  into  the  motives  that  most 
commonly  govern  the  social  world,  and  he  depicts  with  the  strength  and 
power  of  an  artist  the  misery  and  wretchedness  of  homes  where  all  that  is 
ennobling  is  crushed  under  the  weight  of  daily  burdens  and  toil.  His 
story  is  simple,  but  it  is  impressive,  and  it  leaves  no  stone  left  unturned 
that  will  assist  in  the  expose  of  modern  social  tendencies  toward  the  refor- 
mation of  the  criminal."— Boston  Herald. 


CLOTH,  BLUE  AND  GOLD, 50  CENTS. 

THE  HUMBOLDT  LIBRARY, 

64  Fifth  Ave.,  New  York.        Chicago,  Charles  H.  Kerr  &  Co. 


ELEMENTS  OF  LIFE  INSURANCE 

BY 

MILES  MENANDER  DAWSON. 


This  work  is  a  non-mathematical  explanation  of  life  insurance 
as  practiced  by  the  regular  companies  of  the  United  States.  It  is 
comprehensive,  handling  the  subjects  of  rate-making,  reserve- 
computation  and  the  like,  and  also  the  forms  of  policy  contracts 
and  their  significance.  It  will  be  found  especially  useful  to 
agents  and  to  those  who  are  beginning  the  study  of  insurance  or 
actuarial  science  ;  for  it  is  written  in  simple,  untechnical  lan- 
guage, so  as  to  be  intelligible  to  any  ordinary  business  man. 
Thus  an  agent  will  find  matters  explained,  just  as  he  will  wish  to 
explain  them  to  his  customers.  Perhaps  no  higher  recommenda- 
tion can  be  offered  for  this  work  than  that  it  has  been  enthusiasti- 
cally received,  and  that  it  established  Mr.  Dawson's  reputation. 
The  following  short  quotations  from  newspapers  and  others, 
relative  to  it,  will  serve  to  illustrate  its  scope  : 

"  Not  an  essential  item  in  the  operation  of  life  insurance  is  missed."— Jour- 
nal of  Commerce,  Boston. 

"The  book  is  continuously  and  absorbingly  interesting."— Baltimore  Under- 
writer. 

"  The  author  is  evidently  one  who  thinks  for  himself.  *  *  *  It  is  the  best 
book  of  the  kind  ever  published. "— Insurance  World,  Wttsburg. 

"Its  style  is  simple,  lucid  and  thought  inducing."— Courier-Journal,  Louis- 
ville. 

"Why  didn't  you  call  it '  Insurance  Made  Fascinating.'''—^^.  77.  Chap- 
man, Ph.  I).,  Pres.  Oregon  University  and  ex-Ass't  Prof.  Mathematics,  Johns 
Hopkins  University. 

"Mr.  Dawson  has  a  remarkably  clear  way  of  putting  things."-  Our  Monthly, 
Toronto. 

"It  is  designed  for  the  insurance  agent  and  solicitor  and  for  the  general  pub- 

"No  one  can  complain  of  not  understanding  the  meaning  of  or  any  equivo- 
cation in  the  expression  of  opinions."—  Walter  C.  Wright.  Actuary,  New  Eng- 
land Mutual  Life. 

"It  is  undoubtedly  the  clearest  and  most  concise  presentation  of  the  funda- 
mental principles  of  life  insurance  that  has  yet  come  to  our  notice. "—Insurance 
Herald,  Louisville. 

"  His  ideas  are  so  plainly  and  fairly  put  that  the  book  may  be  read  and  un- 
derstood by  the  average  business  man."—  The  Adjuster,  San  Francisco. 

"It  is  a  popular  and  very  intelligible  exposition  of  the  principles  and  prac- 
tices of  the  life  business,  and  one  of  the  best  manuals  of  its  kind  which  we 
have  seen  from  our  American  cousins."— Finance  Chronicle,  London. 


SENT   POSTPAID   ON    RECEIPT   OF    PRICE,   $2  00. 


THE  SPECTATOR   COMPANY, 

95    William   Street,   New  York. 


ASSESSMENT  l2ire  INSURANCE. 

BY 

MILES  MENANDER  DAWSON. 


The  book  clearly  and  unmistakably  points  out  and  demonstrates 
the  unscientific  character  of  the  faulty  plans  that  have  led  to  the 
failure  of  many  assessment  companies  in  the  past,  and  indicates 
the  perils  to  which  the  unwary  purchaser  is  likely  to  expose  him- 
self and  his  beneficiaries  if  such  misconceived  plans  are  persisted 
in.  These  defects,  which  it  often  puzzles  the  most  skillful  to 
detect  and  expose,  are  here  made  so  plain  that  the  layman  can 
readily  understand  them.  The  book  is  not  technical.  It  appears 
to  have  been  written  mainly  for  the  purpose  of  discovering  a  way 
out  of  their  difficulties  for  all  the  honestly  conducted  assessment 
societies  that  find  the  crudities  of  their  plan  fatal  to  them.  The 
true  nature  and  field  of  this  class  of  insurance  are  mapped  out 
with  great  lucidity,  and  much  valuable  counsel  is  offered  to  the 
managers  of  such  societies. 

To  the  growing  number  of  students  of  sociology  throughout  the 
country  and  the  world,  the  work  will  be  of  great  interest,  and  to 
all  investigators  of  this  especial  field  of  commercial  and  social 
life  it  will  be  found  of  paramount  importance.  It  contains  in  the 
most  condensed  and  graphic  form,  a  complete  account  of  one  of 
the  most  remarkable  "movements  of  the  age  ;  that  of  the  people 
toward  mutual  insurance  organizations.  The  significance  of  such 
phenomena  is  apparent  in  the  tremendous  hold  that  these  organi- 
zations have  obtained  upon  the  people. 

"Deserves  a  large  sale,  and  ought  to  find  its  way  into  libraries 
as  well  as  the  hands  of  students  of  insurance  and  practical  insur- 
ance men." —  Walter  C.  Wright,  Actuary. 

"A  good  book." — Insurance. 

"Impartial  in  its  statements,  and  a  most  interesting  work." — 
Mutual  Underwriter. 

"Should  be  found  in  the  library  of  every  insurance  man. "- 
National  Underwriter. 

"  Interesting  and  instructive." — Coast  Review. 

"Deserves  the  attentive  consideration  of  all  engaged  in  life 
underwriting  as  well  as  insurance." — N.  Y.  Insurance  Journal. 

"  I  wish  that  it  could  be  placed  in  the  hands  of  every  officer  of 
an  assessment  association.  Its  teachings  would  not  only  simplify 
the  work  of  an  Insurance  Commissioner,  but  would  add  greatly 
to  the  stability  of  this  class  of  organizations." — Hon.  Win.  A. 
Friche,  Ins.  Com.,  Wisconsin. 


SENT  POSTPAID  ON   RECEIPT  OF  PRICE,  $1.60. 

Assessment  ii/e  Instirance  and  Elements  of  Life  Insurance   (a 

companion  work  on  legal  reserve  life  insurance.    Price,  $2  00).    Cau  be  pur- 
chased when  ordered  together,  for  $3.00. 

Jl?e  Spectator  C^ompapy,  95  U/illfam  St.,  ffeu; 


PRACTICAL  LESSONS 

IN 

ACTUARIAL?  •  SCIENCE, 

BY 

MILES  MENANDER  DAWSON. 


(IN   PRESS.) 

This  work  is  a  technical  text-book  in  Actuarial  Sci- 
ence, suitable  for  the  use  of  students,  and  especially  of 
those  whose  mathematical  acquirements  do  not  extend 
beyond  Algebra. 

It  will  supply  simple  formulas  for  every  computation 
ordinarily  required  of  actuaries,  from  the  construction 
of  mortality  tables  to  the  calculation  of  reserves  and  of 
dividends.  Many  formulas  not  found  in  other  books 
will  be  exemplified. 

No  similar,  elementary  work  in  English  exists. 


THE  SPECTATOR  COMPANY, 

PUBLISHERS, 

95  WILLIAM  STREET, 
NEW  YORK 


QYlifes  (Ylflenanber 

Con0uffin<j 

11  BROADWAY,  NEW  YORK. 


Expert  Counsel  in  Insurance  and  Mutual  or  In- 
stalment Investment  matters  for  Companies  and 
Associations,  State  Departments,  Agents  and  Fac- 
tors, and  Private  Persons* 


A  Special  Feature  is  advice  to  persons  contem- 
plating insurance  or  investment*  Fees  moderate* 
No  insurance  placed  or  investments  sold* 


Auditing  and  examinations  of  insurance  com- 
panies and  instalment  investment  companies  only, 
undertaken*  

Particular  attention  given  to  devising  and  cor- 
recting plans  of  new  mutual  companies* 

Inquiries  of  correspondents  given  prompt  notice 
and  replies* 


References  furnished  on  request* 


"THE  PRINCIPLES  OF  INSURANCE  LEGISLATION"  first 
appeared  serially  in  the  Insurance  World. 


THE 

Insurance-^ 
World, 

PUBLISHED  AT 

339  Fifth  Avenue, 
Pittsburg,  Pa. 


J.  C.  BERGSTRESSER,  EDITOR. 

T.  A.  WARREN,  BUSINESS  MANAGER. 


A  THOROUGHLY  RELIABLE 

.   .    INSURHNOO   JOURNAL,   .   . 

CONTAINING 

THE 


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